Teddy correctly set up the inequality \(5x + 400 > 1000\) to represent James's earnings, where \(x\) is the number of customers served. After solving this inequality, he found that \(x > 120\).
The correct interpretation of this solution in the context of the problem is:
James needs to serve more than 120 customers this week to meet his goal.
This means that James must serve at least 121 customers (since he cannot serve a fraction of a customer) in order to earn more than $1,000 this week.