Source of absurd horse and sheep mix-up (7)
I believe the answer is:
anagram
'mix-up' is the definition.
(I've seen this before)
'source of absurd horse and sheep' is the wordplay.
'source of' suggests taking the first letters (the start - or source - of the word).
'horse' becomes 'nag' (term for an old horse).
'and' means one lot of letters go next to another.
'sheep' becomes 'ram' (male sheep).
The first letter of 'absurd' is 'a'.
'a'+'nag'+'ram'='ANAGRAM'
(Other definitions for anagram that I've seen before include "'Master' of 'stream', say" , "type of clue" , "Jumbling of letters" , "Cruciverbal jumble" , "Word formed by rearranging another word" .)