Step 1 (above): The green stitch is the next stitch on the left needle, the red stitch is the stitch under that. The blue yarn is the yarn of the current row--called the running yarn.
* * *Step 2 (above): Insert the head of the right needle into the red stitch as shown.
* * *
Step 3 (above): Place the head of the red stitch on the left needle--arrange it untwisted, with the right arm forward.
* * *Step 4 (above): With the running yarn (blue) knit the red stitch AND the green stitch.
That's it. Neat, huh?
PS: There has been some confusion between the nearly invisible increase which ADDS a stitch to your fabric (this post above) and "knitting into the stitch below" which is a knitting trick to make a thick and puffy fabric but which does NOT ADD a stitch. It is true that both of these techniques involve the stitch below, but they are not the same thing and confusing one for the other will cause no end of problems in trying to follow a pattern!
(You have been reading TECHknitting on: Invisible increases)