Induced charge separation occurs when a charged object, like a negative rod, influences the distribution of charges in nearby materials, leading to a separation of positive and negative charges. In the first scenario with a hanging ball, the negative rod attracts positive charges closer while repelling negative charges away, resulting in a net positive charge on one side of the ball. In the second scenario with an electroscope, the negative rod similarly attracts positive charges into the ball and pushes negative charges onto the leaves, causing them to repel each other. The confusion arises from the mixed representation of positive and negative charges, as well as the grounding aspect, which is not clearly defined. Understanding that atomic nuclei are fixed and only electrons move helps clarify the concept of induced charge separation.