You have perfectly explained why Real Madrid wants Trent Alexander Arnold he is incredible attacker with great speed and crosses but his defense is weak as he mostly loses his spot and is not consistent. However you are right that smart coach like Xabi Alonso could fix this by using four defenders to cover for him. It will take time for team to gel but if Xabi can get defense to work well with Trent he could really succeed at Real Madrid despite his current defensive issues.
Remember that Trent is a defender, not an attacker but his weakness in defense makes his position in English national team is uncertain. There were times Southgate did not call Trent for international duty but I agree with you that he is a good attacker. Likely Real Mardid wanted to have Trent for their attacking improvement, and did not plan on improving their defense system with him.
Real Madrid with their tradition of beauty and attacking football looks to be a right place for Trent to shine. If he is used mainly for attacking system, his defensive weakness will be covered well enough.