If taking a suburban train in London and buying a Permit to Travel, bought at dedicated vending machines for any amount less than the full fare, to be exchanged for an actual ticket later by paying the difference, where does one exchange the permit for an actual ticket?
You exchange the permit for a ticket if you are asked to present your ticket onboard the train by a guard, ticket inspector or revenue protection officer - they will charge you the difference between the permit value and the ticket you require to conduct your journey, or refund the difference if the permit is worth more than the ticket for your journey (unlikely).
You may also be asked to purchase the full ticket from a ticket office if you present the permit at an exit barrier inspector, if that ticket office is open.
From the National Rail penalty fares FAQ:
If you are unable to do so, you must buy a Permit to Travel from the machines that are provided at most stations. This permit must be upgraded to a valid ticket at the first opportunity.
If you are not challenged onboard or at your destination station, the proper approach is to voluntarily go to the nearest open ticket office and exchange the permit.
In practice, if you remain unchallenged, you just got yourself some cheap train travel.