I played around with it for a while, and I figured some things out.
In the Starting Points window, in the Recent Items tab, it displays pretty much every file you've ever used in AppleWorks (or at least a very large number). This list is a folder of aliases located at Home/Documents/AppleWorks User Data/Starting Points/Recent Items.
Now in AppleWorks, the Open Recent item in the File menu displays the first (alphabetically) 10 (or whatever the number is set to) files from this folder. Some, if not all of the names in the menu are not near the start of the alphabet though. This is because AppleWorks has made a copy of some of the aliases and put a '*' at the start of the their names. This puts them at the top of the folder, and then it trims this from the name when it displays the file in the menu.
In short, what is meant to happen is that AppleWorks creates aliases called '*[File name]' for recent items. It doesn't do this properly though, and I haven't figured out in what scenarios it does.
So, it is relatively easy to manually modify the menu by putting aliases beginning with an '*' in the folder above (and if you want the file at the very top you can put multiple *s at the start of the filename and it will trim them all). This is probably not what you want though, but hopefully it will provide some insight into what's going on.
BTW, to clear the menu, simply delete the above folder.