Drupal - How to reference existing entity using Inline Entity Form?

To add more clarity to the answer:

• In Edit tab, check "allow users to select existing nodes" as shown below

• In your content creation form, you could find two buttons: Add New Node and Add Existing Node as shown below

Inline Entity Form settings are in the Edit tab, not the Field settings one. Once I realized this, it was easy to find Allow users to add existing nodes checkbox. Once it's checked, there are two buttons on field's list: a button for creating a new reference, and one for referring the existing nodes.

The important yet confusing step I observed when wanting to add an existing term, for example, was to make sure you select "Inline entity form - Multiple values" not single values (see https://www.drupal.org/node/2134035). The current patch needs community review.