I don't think this example is Hegel's best. The big points seem to be:
* we might be tempted to think of cognition as an "instrument" or "tool" to grasp a reality that's outside of itself. This is, more or less, Locke's position, whereby sensory data (including that improved upon by yardsticks and thermometers and lenses) yields "data" about the world that has great fidelity to that world
* we might also think (and this is Kant's position, more or less) that cognition is a "medium" through which reality passes, distorting it but in a way that allows us to "correct" for bias to some extent. So, we don't know whether space/time/extension/hardness/etc. are "real" in a final sense, but they are how our brains can process or filter a reality whose final "an sich" reality eludes us.
H dismisses both of these approaches: if we examine a bird perched on a twig, we're seeing a partial/imperfect representation of the bird. If we remove the twig, the bird flies away, and we're right where we started.
H will pursue neither the "tool" nor the "medium" argument, instead building up a mode of consciousness in which consciousness is not "apart" form anything but is "a part of" everything, including the inanimate material world and the collective Geist of what he calls the "Absolute." But sweet Jesus: he can't tell us yet how that works or what that looks like, so we MUST KEEP READING!!