Suppose you have a representation $V$ of the subgroup $H< G$ and wish to construct the 'most free' representation of $G$ that would restrict to the given representation of $H$. The way to do this is to allow formal multiplication of the vectors in $V$ by elements of $G$, subject only to the condition that expressions involving elements of $H$ can simplify by invoking its known linear action on $V$.
This idea of freeness in constructions is very general - and can also be very concrete (as opposed to involving abstract universal properties from category theory): if you have an algebraic structure and wish to extend it, you can simply append a symbol to the underlying set and then allow every expression that can be constructed from the original structure and that new symbol into the mix.
For example, if you have a ring $R$, you can create the polynomial ring $R[x]$ in the symbol $x$ by adding all of the powers of $x$ to $R$ and then allowing linear combinations. This is sufficient: by the distributive property, the product of two polynomials will again be a polynomial, so nothing beyond these polynomials is needed to make a ring with underlying ring $R$, and element $x$ satisfying no special relations (except for $x$ commuting with everything, although there is a noncommutative polynomial ring construction as well, denoted $R\langle x\rangle$).
Another example: the free group generated by a set. You allow all "words" involving the symbols from the set, as well as formal inverses, and you automatically have a group - not letting them satisfy any relations (that is, two distinct words being equal as elements in the group) means that we have a free construction. Similarly, to make the free product $G\star H$ of the groups $G$ and $H$, we allow the formal multiplication to be done by elements of $G$ and $H$ together, and the only "simplifications" that take place are when two elements of $G$ are put together or two elements in $H$, in which case we allow the multiplication to go as it would in $G$ or $H$ originally. (Also $1_G=1_H$.)
To create the formal elements $gv$ for $g\in G$ and $v\in V$, we will automatically have the vector space
where $gV$ contains every symbol $gv$ for $v\in V$ and $g$ given. It is easy to see how $G$ needs to act on this space in order for things to work out: $a(bv)=(ab)v$. Sums like $gv+gw$ will simplify as $g(v+w)$, but expressions like $av+bw$ will not simplify if $a\ne b$ in $G$. These relations are required in order for this to be a linear action of $G$. But we must impose additional relations in order to keep the original action of $H$ on $V$; to this end, let $\rho:H\to GL(V)$ be our representation, and quotient the above direct sum by the subspace spanned by vectors of the form $ghv-g(\rho(h)v)$ for all $g\in G$, $h\in H$, $v\in V$. This subspace is $G$-invariant and so the quotient makes sense as a representation.
Remark. Things get tricky when $[G:H]$ is infinite: we need to reinterpret these formal vectors as functions $G\to V$ (this is a way of making "infinite tuples" indexed by elements of $G$) and then looking at the subspace of functions satisfying certain relations. Depending on whether or not we specify these functions to have finite support, we will have done either induction or coinduction.