he found it inhabited by a race of Indians

句子中的it是形式宾语代表一个居住地点。inhabited便是它的补足语。
这种it的用法很常见，比如说：he finds it important to learn English.

至于inhabited，是居住的意思，比如说这个小镇上住着一群农民，可以说：this small town is inhabited by a group a farmers.

所以你提的那个句子的意思就是：他发现这里居住着一个印度种群。