The inductive step, when you are proving a statement $P(n)$ for all $n \in \Bbb N$ (or something similar like "all integers greater than $4$" or whatever), is showing that, if $P(k)$ is true, then $P(k+1)$ is also necessarily true.
This establishes a domino effect of sorts, when combined with the validation of the base case. You know, for instance, $P(0)$ holds, and that $P(k)$ implies $P(k+1)$. Since $P(0)$ is known to be true, the $P(k) \implies P(k+1)$ property shows (for $k=0$) that $P(1)$ holds. And then it shows $P(2)$ holds. And $P(3)$. And $P(4)$. And so on and so forth, never-ending. The truth of any value ends up implying the one "next up" in the chain. It's really quite a powerful domino effect.
So, as for your other question, when do you recognize how to use $P(k)$ in proving $P(k+1)$ holds? (After all, you assume $P(k)$ in proving $P(k+1)$ holds, so you should hopefully use it at some point!) Sadly, there's no general technique. When looking at the $P(k+1)$ statement, your goal should be to somehow manipulate the expression into a form that somehow resembles $P(k)$. For instance, a common introductory induction proof might consider
$$P(n) : \sum_{i=1}^n i = \frac{n(n+1)}{2}$$
If you assume $P(k)$, how might you prove $P(k+1)$? Notice that
$$P(k+1) : \sum_{i=1}^{k+1} i = \frac{(k+1)(k+2)}{2}$$
and you are assuming
$$P(k) : \sum_{i=1}^{k} i = \frac{k(k+1)}{2}$$
What you are looking to do is, in the $P(k+1)$ statement, to turn the sum into something referenced in $P(k)$. And notice that you can pull out the $(k+1)^{th}$ term -- that is,
$$\sum_{i=1}^{k+1} i = (k+1) + \sum_{i=1}^{k} i$$
And look, we see a reference to $P(k)$, the sum from $1$ to $k$! Since we assume $P(k)$ is true, we can substitute that summation with $k(k+1)/2$, and then work with the $k+1$ summand as well and try to validate $P(k+1)$.
Not all induction proofs are this easy, but that's the idea: manipulating $P(k+1)$ to reference $P(k)$, and validate its truth. How easily the manipulation comes to mind can only be honed with practice, however, because a wide variety of fields in math use induction to some degree.