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Why?
Division of the Subcontinent
According to Dr. Crispin Bates, India agreed to divide colonial India into two states. The first state was Pakistan having a Muslim majority. The second state was India having a Hindu majority. This agreement was made to primarily prevent any conflict between the two sides and secondarily to grant more power to each side.
When?
The official date of separation is August 17, 1947.
How?
They decided that Pakistan would be a state mostly for Muslims and India for Hindus. It seemed like a good deal to avoid future conflict, but it didn't. Pakistan hardly got any government, industry, or the largest cities. They all stayed in India.