Verse 3

3. Atman like the Akasa rises up indeed in the form of Jivas (individual souls), like spaces enclosed by earthen jars, and in the form of Aggregates, bodies etc. like earthen jar etc. This is the illustration in the matter of birth or, origination.

The appearance of birth of individual bodies is of name and form only. Within the play of Maya there is the phenomenon of senses, perception and so forth. Through such mechanisms the unborn Self experiences Its-Self. We have heard in the previous chapters how all forms are empty of reality, that is because they exist in name only. In this verse that is illustrated by the example of the clay pots. Each individual clay pot exists in name only because in reality they are all from the same earth, they are all actually clay which could take any form. In this case the clay takes the form of a pot and is a pot in name only. When a new pot is made or born it is just another name for the same reformed earth, not truly the birth of a new entity in its own right. Further, each pot encloses the same space, All the pots are only dividing the One space.
Likewise all bodies seen as individuals are of the same material and are only dividing the One true existence, The Absolute Self.