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Okay so I failed because there is apparently a leak which I cannot see and all indicators for issues with power searing my car does not have.

This is my first car so I have NO idea if he is telling the truth or even what to do next. He apparently can look into it next Saturday and said it could cost up to $500 to get it fixed and I practically had to start crying before he would even give me that info. He has given zero info on how it is leaking etc. Only that it would need further investigation ...

What should I do? You can buy that stop leak stuff - would that work?

It would be most unusual (as well as unethical and unlawful) for your mechanic to fail your car on a fault that does not exist. Power steering leaks can be caused by a multitude of possible problems and it's entirely possible that your mechanic cannot tell what is causing the leak until he investigates further. A WoF inspection is not an invasive inspection and it is not really the job of the inspector to speculate on the cause or cost of any problem.
However, if you have any doubts, take your car to another garage for the repair, then back to the original garage for the WoF recheck. That way, the garage who did the WoF inspection cannot be accused of being untruthful, as the repairer is impartial and you can be sure that there was in fact a problem.
A power steering leak is generally caused by a worn component (such as the steering rack) or a hose or connection. There's nothing you should put into a power steering system to cure leaks - it is a safety issue which needs to be properly repaired.