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This is pattern 196 in Lesley Stanfield's The New Knitting Stitch Library. There are a few mistakes in the diagram. This is the first time using my new graph paper for creating these diagrams.
In essence, this diagram shows you the path the yarn takes in an idealized (simplified) version of a knitting stitch pattern. It contains no height (depth) information, though, so there's no way to know a knit stitch from a purl stitch. Still, it's good for showing the structure of a knitted lace stitch pattern.