For me, it's a matter of taking a subject matter that people can relate to...something that, in at least some capacity, I've personally experienced. From there, I let my imagination distort it and take it in a particular direction.
I also listen to other songs and purposely try to misinterpret what the singer is saying, but not a goofy misinterpretation. I'm not referring to changing a single word. For example, in Pearl Jam's "Rearviewmirror", there's a phrase where Eddie Vedder sings "A fool to your crown". Now, maybe I mishear that as "A rule to fall down". Then I think to myself, "that's interesting..." I jot it down (or type up a note in my phone). Now, I've never misheard that particular lyric, and "a rule to fall down" is a bit of a stretch, but it served the purpose of an example using the first bit of lyrics that came to mind.
When I'm stuck on a rhyme, I will turn to google to find words that rhyme. Sometimes, that's enough to make me think of a word and sometimes I use a word I found with the search. Now, I'll admit to rhyming too much, but if that's your thing and you get stuck, this can definitely help. If you're not going for an exact rhyme, you could try a search for "words that sound like..." The internet has made situations like this much easier.
I'll admit to being more of a fan of simple lyrics. One can tell an effective story using common words. I'm not a huge fan of big words for the sake of a big word. I don't even need for lyrics to be overly clever if they are effective at conveying the point.
But, as someone else said above, lyrics are very subjective.
