Test functions with "wrong" topology not locally convex?

The inductive topology you describe in the category of topological spaces is not locally convex -- it equals the final topology with respect to all smooth curves in $C^\infty_c(\mathbb R)$; there are also many other descriptions. See section 4 in

• Andreas Kriegl, Peter W. Michor: The Convenient Setting of Global Analysis. Mathematical Surveys and Monographs, Volume: 53, American Mathematical Society, Providence, 1997.

But the inductive topology in the category of locally convex vector spaces is of course locally convex; it the finest locally convex topology which is coarser than the first one.

Edit (enlarged later answering a comment of OP).

The remark after proposition 4.26 on page 46 of the source cited above says, that the the direct limit topology in the category of topological spaces, is NOT a vector space topology. This topology equals the $c^\infty$-topology, the final topology with respect to all smooth curves, because: It is the final topology with respect to the inclusion of Frechet spaces. Frechet spaces carry the $c^\infty$-topology. Each smooth curve in $\mathcal D$ locally lifts to a step in the direct limit, since this is a strict direct limit. The arguments given in that source start with lemma 4.20.

This answers your question. In fact, addition is not jointly continuous, but scalar multiplication is.

The proof amounts to the following fact: You find closed linear subspaces in $E,F$ in $\mathcal D$, one of which is Frechet (like one $\mathcal D_K$), and the other one is isomorphic to $\mathbb R^{(\mathbb N)}$ (the direct sum of countably many copies of the real line), and a bilinear bounded mapping $E\times F\to \mathbb R$ which is not jointly continuous, like the the evaluation $\mathbb R^{\mathbb N}\times \mathbb R^{(\mathbb N)}\to \mathbb R$.

Now, I hope the following clarifies your thinking: The final topology (NOT locally convex topology) with respect to all embeddings $\mathcal D_K\times \mathcal D_K$ into $\mathcal D\times \mathcal D$ is strictly finer than the product topology of the final topologies on each copies of $\mathcal D$. This follows from a careful reading of the references above. The proof in your edit seems to show that addition is continuous for the final topology of these inclusions on $\mathcal D\times \mathcal D$ which is finer that the product topology.

By the way: Terry Tao's reference exactly answered your question.