Aristotle has just divided speech into two categories in the Categories. Now he is going to divide the words that are combined into four categories based on how they combine.
Of things there are: (a) some are said of a subject but are not in any subject. For example, man is said of a subject, the individual man, but is not in any subject. (b) Some are in a subject but are not said of any subject. (By in a subject I mean what is in something, not as a part, and cannot exist separately from what it is in.) For example, the individual knowledge-of-grammar is in a subject, the soul, but is not said of any subject- and the individual white is in a subject, the body (for all colour is in a body), but is not said of any subject. (c) Some are both said of a subject and in a subject. For example, knowledge is in a subject, the soul, and is also said of a subject, knowledge-of-grammar. (d) Some are neither in a subject nor said of a subject, for example, the individual man or the individual horse for nothing of this sort is either in a subject or said of a subject. Things that are individual and numerically one are, without exception, not said of any subject, but there is nothing to prevent some of them from being in a subject the individual knowledge-of-grammar is one of the things in a subject.
Words that are not about other words are names. Names come in two categories: subjects and predicates. It is the predicate that is added to the subject. So these categories divide words depending on which kind of predicate they could be. The first category is those predicates that are said of a subject but are not in a subject. For example, we might claim that a particular man is human but humanity itself in not inside that particular man. The second category is those predicates that are in a subject but not said of a particular subject. Something is in a subject if it cannot exist apart from being in a subject but is not a part of what the subject is. Whiteness is in a white piece of chalk, but is not a part of what chalk is. Knowledge of grammar is also in a person, but it is also not a part of what that person is. The third category is is those predicates that are said of a subject and are also in a subject. Knowledge is a particular example of this. It is said of grammatical knowledge because grammatical knowledge is a kind of knowledge. But it is also in a person because a person might have knowledge but having knowledge is not what being a person is. Finally, we come to the category of words that are never predicates at all. They cannot be said of a subject nor are they in a subject. Particular men and horses are examples of this. But not all individuals belong in this category. The knowledge of grammar that I have still is in me, and does not qualify.
This is a complex passage. The two key phrases are in a subject and said of a subject. Aristotle does give a brief claim that in a subject means that it is not a part and cannot exist separately. By a part, Aristotle seems to mean a part of what makes a subject a subject. So if something is a part of knowledge, then it is belongs in the definition of knowledge. There is also a temptation to make Aristotle connect these distinctions to the metaphysical distinctions that he makes later.
Next, Aristotle discusses the said of a subject relation by showing that it is transitive.