I read this text as "would" being the future-in-the-past version of "will.".
As an adolescent, Einstein had been an indifferent student (past-in-the-past), but later he would revolutionize physics (future-in-the-past).
The poster above is right.
Would is used as a model verb in the text that you cited.
"Would be" is a part of a conditional construction intended to convey the idea that something would occur/happen/come into a greater focus in the future. The future here refers to a period ((during Freud's lifetime and what is now the past since he's long dead)) in which psychology would be further refined and delineated by Freud himself. Hence, the text is referring to something that hadn't happened until Freud's lifetime and now all of us can look back on the history of psychology. Additionally, because of the wording the text we can infer that the study of psychology wasn't yet a well-formed discipline... it later "became" more so through Freud's efforts. Also, "would be understood" in the above text means/infers that prior to Freud's lifetime human behavior wasn't well-understood, but Freud himself contributed greatly to our current understanding of human behavior.
For example, someone could say the following:
Genghis Khan was born in Mongolia around 1162 CE. Later on, he would become one the world's most successful conquerors of all time.