Fifth Panzer Army had been trapped in the Falaise pocket and at the same time the red army had started Operation Bagration and eradicated Army group Centre. On top of that, Germany had serious manpower shortages. The Volksgrenadierdivisions were a more manpower-economical version of the standard Grenadierdivisions. The name “Volksgrenadier” (“grenadier of the people”) was chosen for propagandistic effect. The same thing had happened even earlier, when all “Infanteriedivisions” were renamed “Grenadierdivisions” because “Grenadier” just sounds cooler and more professional.
The philosophy behind the Volksgrenadiers was giving the individual soldier more firepower. In the older doctrine of the Wehrmacht, the MG gave 90% of the sqads firepower, while the riflemen were only there to support the machine gun crew. To boost the soldiers firepower, more automatic weapons were deployed, for example StG44 assault rifle or the G43 semi-automatic rifle. There also was a positive side effect: Because there was less and less time to train new soldiers, the more modern weapons were supposed to counter-balance their inexperienced wielders. I presume you are all familiar with this principle from FPS games: Noobs always take the weapons you can “spray and pray” your way to the high score. There were some disadvantages, however, resulting in the horrendous casualty rates of the Volksgrenadiers during the Battle of the Bulge. This development mirrors the Red Army, who equipped whole badly trained infantry-division with the excellent submachineguns PPsH41 and PPD40 in the early years of the war, when the situation was dire and there was a great need for new divisions that could be sent into the fray. When the course of war changed, Germany acted the same.
Some Volksgrenadier divisions were freshly trained, others were formed out of whatever remained of destroyed Grenadier divisions. Because of that, the quality of the different units differed. Some were formed by inexperienced conscripts, others by veterans and others had lost the will to fight after years of war and surrendered rather fast.
Volksgrenadiers are commonly mistaken for the “Volkssturm.” The Volkssturm were militia, consisting of children and old men, formed to defend German home soil against the enemy. These units had basically no training and were often send into combat only with a Panzerfaust and a reassuring speech. (To quote a German general: “Wenn sie das Ding abgefeuert haben, können sie das Rohr immer noch als Keule benutzen.“ After they fired the thing they can still use the tube as a club.“)
Bottom line: COH´s portrayal of Volksgrenadiers is basically correct. They are cheap troops of rather low combat effectiveness that can be equipped with some automatic weapons for more firepower.