[guided]The goal is to prove exactness at $\operatorname{Hom}_R(B,I)$. Exactness there means that the maps $g:B\to I$ killed by precomposition with $\iota$ are exactly the maps that come from maps $C\to I$ by precomposition with $\pi$.
First take an $R$-linear map
\begin{align*}
f: C \to I.
\end{align*}
Then $\pi^*(f)=f\circ \pi$. Precomposing once more with $\iota$ gives
\begin{align*}
\iota^*(\pi^*(f))
= (f \circ \pi)\circ \iota
= f \circ (\pi \circ \iota).
\end{align*}
The original sequence is exact, so $\operatorname{im}\iota=\ker\pi$, and in particular $\pi\circ\iota=0$. Therefore
\begin{align*}
\iota^*(\pi^*(f))=0.
\end{align*}
This proves
\begin{align*}
\operatorname{im}\pi^* \subseteq \ker\iota^*.
\end{align*}
Now suppose
\begin{align*}
g: B \to I
\end{align*}
is $R$-linear and lies in $\ker\iota^*$. By definition of $\iota^*$, this says
\begin{align*}
g\circ\iota=0.
\end{align*}
We want to construct an $R$-linear map $h:C\to I$ such that $g=h\circ\pi$. Since $\pi$ is surjective, every element $c\in C$ has the form $c=\pi(b)$ for some $b\in B$. This suggests defining
\begin{align*}
h(c):=g(b).
\end{align*}
The only issue is whether this depends on the chosen lift $b$.
Let $b_1,b_2\in B$ satisfy $\pi(b_1)=\pi(b_2)$. Then
\begin{align*}
\pi(b_1-b_2)=0,
\end{align*}
so $b_1-b_2\in\ker\pi$. Exactness gives $\ker\pi=\operatorname{im}\iota$, hence there exists $a\in A$ such that
\begin{align*}
b_1-b_2=\iota(a).
\end{align*}
Because $g\circ\iota=0$,
\begin{align*}
g(b_1)-g(b_2)=g(b_1-b_2)=g(\iota(a))=0.
\end{align*}
Thus $g(b_1)=g(b_2)$, so the definition of $h$ is independent of the chosen lift.
We next verify that $h$ is $R$-linear. Let $c_1,c_2\in C$, and choose $b_1,b_2\in B$ with $\pi(b_1)=c_1$ and $\pi(b_2)=c_2$. Since $\pi$ is $R$-linear,
\begin{align*}
\pi(b_1+b_2)=c_1+c_2.
\end{align*}
Therefore
\begin{align*}
h(c_1+c_2)=g(b_1+b_2)=g(b_1)+g(b_2)=h(c_1)+h(c_2).
\end{align*}
Similarly, for $r\in R$ and $c\in C$, choose $b\in B$ with $\pi(b)=c$. Then $\pi(rb)=rc$, and hence
\begin{align*}
h(rc)=g(rb)=r g(b)=r h(c).
\end{align*}
So $h\in\operatorname{Hom}_R(C,I)$.
Finally, for every $b\in B$,
\begin{align*}
(\pi^*h)(b)=h(\pi(b))=g(b),
\end{align*}
where the last equality uses $b$ itself as a lift of $\pi(b)$. Thus $g=\pi^*(h)$, proving
\begin{align*}
\ker\iota^* \subseteq \operatorname{im}\pi^*.
\end{align*}
Together with the first inclusion, this gives
\begin{align*}
\ker\iota^*=\operatorname{im}\pi^*.
\end{align*}[/guided]