As Derek Elkins well commented, you miss to give information about 'where do $i,f,\bar f$ live'.
The title of the question suggests that it's about the universal property of the free objects.
So, for a given set $X$, $\ i$ will be the embedding $X\to F(X)$ where $F(X)$ denotes the free whatever structure generated by $X$.
Now, freeness of $F(X)$ says that
For any function $f:X\to A$ which goes to [the underlying set of] some object $A$ of whatever structure, there is a unique morphism $\bar f:F(X)\to A$ (preserving the whatever structure) such that $\bar f\circ i=f$.
Once we know that $i$ is an embedding, $\bar f\circ i=f$ means nothing but that $\bar f$ extends $f$.
In other words, given an 'evaluation' $f(x)\in A$ for all the 'variables' $x\in X$, there is a unique way to extend this to the free object $F(X)$ to obtain a morphism $F(X)\to A$.
To make it precise, one usually states this triangle in $\mathcal Set$ (because $X$ is not assumed to have any structure), and in our formulas we might want to use the 'underlying set' functor $U$ to make things clearer. (Note that $U$ will map a homomorphism to the exact same mapping, but viewed as only a pure function.)
With that, we should rather write $U\bar f\circ i=f$:
$$\matrix{X & \overset i\to & UF(X) \\
&{}_f\!\!\searrow & \ \ \downarrow U\bar f \\
&&U(A) } $$
If you want to work out a specific example, I suggest semigroups (or monoids), as a free semigroup over a set ('alphabet') $X$ is just the set of finite 'words' (sequences) built from elements of $X$, with concatenation as the associative operation. (Free monoids include the empty word as unit element.)