In plain words
He is not the inert gross body: he is not the water in that pot: that is, the modifications, kāma, krodha and the rest, the feelings of duality and so on. He is not the subtle body either. He is not the causal form either. He is formless. He plays the part of one bound to a fleeting, impermanent form and name, that is all. This inert thing that shines out as made of clay is the worldly; the true principle within it, made of Consciousness, is the spiritual. But one thing you must take firmly to heart. The clay is in the pot, but the pot is not in the clay. The Ātma is in the body, but the body is not in the Ātma. The pot is a thing made up, impermanent, Asatya. The Ātma is eternal; it is Satya. So man must know the Ātma, the support of all.
As for understanding, there are three kinds of it: Jñāna, Sujñāna, Vijñāna. To know the form and features of the world through the senses, through books, through others, is Jñāna.