Tensor product and category theory
You might like Brian Conrad's handouts for a sophomore differential geometry course. Especially relevant are Construction of tensor products and the two handouts after that one. They have some nice examples and a heavy emphasis on the universal property.
(I don't think this warranted more than a comment, but I can't post those yet.)
My view of the pedagogy, based on teaching this to second year undergraduates at Cambridge.
The tensor product of vector spaces is defined by generators and relations. Also generators and relations, as a way of defining anything, is a method depending on a universal property (to make much sense).
If you take these two parts one at a time, you have a chance of understanding what is happening. The generators and relations are just bilinearity spelled out. The remark about generators and relations as a mode of defining anything can be learned anywhere you like (e.g. group theory): the reason that there is a universal property is just "stuff", "abstract nonsense", "mathematical maturity" even.
I believe, quite strongly, that the eliding of the punctuation between the two sentences is a negative in teaching this material. (I really do not care if this spoils Mac Lane's or anyone else's view of category theory and its role: "universal property" is only a stepping stone there, not the ultimate goal.)
I'm pretty much in your spot. I think part of the way there is learning to think with universal properties. I recently found a really good book (Algebra: Chapter 0, link below) on 'basic' algebra using category theory to unify things. All the basic stuff like products, disjoint union, surjections and injections are treated rigorously and in great generality through their universal properties. If you already know your group and set theory reading through the first few chapters can be done quickly, and should get you in the right mode of thought. I'm doing this myself right now, and so far I recommend you do the same.
http://www.amazon.com/Algebra-Chapter-Graduate-Studies-Mathematics/dp/0821847813/ref=sr_1_1?ie=UTF8&s=books&qid=1279112196&sr=8-1
EDIT: A nice application of the tensor product can be found in the first few pages of 'Differential Forms in Topology', that is, if $\Omega^*$ is the algebra generated by the formal symbols $dx_j,j=1,\dots,n$ under the relations $dx^2=0$ and $dx_idx_j=-dx_jdx_i$, then $\Omega^*(U)=C^\infty(U)\otimes\Omega^*$ is the algebra of differential forms on the open set $U$ (under the wedge product). I'm not sure if that's how it's primarily used.
http://books.google.com/books?id=S6Ve0KXyDj8C&printsec=frontcover&dq=bott&hl=en&ei=ALs-TJLFF4SI4QaRuvCFCw&sa=X&oi=book_result&ct=result&resnum=1&ved=0CCcQ6AEwAA#v=onepage&q&f=false