Step 5: When you click on Missing Files (SMART PLAYLIST, from step 4) you should be left with only your missing files.
Select all (or some) of the missing files, notice you will not be able to delete or remove them from your library by just hitting DELETE (the option is also not available in the menu)
From here you have two (2) options: #1 locate the files or #2 remove the files from your library, for option #2: you need to hold the SHIFT key + DELETE (notice that Delete is now available in the menu)
Now you have a nice and clean iTunes library.
This is the guide I followed: