By default, when you add a new 1:N mini sub-grid to a form to display a custom entity you will get the following user experience…
The user clicks the + icon to add a new child record via the sub-grid.

CRM reveals a lookup control to allow the user to browse for an existing record. But in most cases (98%) the user needs to add a NEW record instead of add an existing. Especially in the 1:N relation! On a N:M relation the "Add Existing", of course should be the Default.


Gareth Tucker has described this very well in his blog, and also figured out a Workaround.
But in my opinion this should be changed in the product, to make life easier...
http://garethtuckercrm.com/2013/11/19/fixing-the-sub-grid-user-experience-in-crm-2013