When trying to comprehend anything related to Sanatana Dharma/Hinduism, we need to utilize the tripartite lenses, as expounded by Yajur Veda (Taittiriya shaka yajur veda aranyaka to be specific; and to Shisksha Valli to be even more specific): AdhyAtmika drishti; Adi bhoutika drshti & Adi davika drshti. Our religion is a dArshana system afterall (I am leaving out Adi Joushta & Adi vidya to keep this simple).
Otherwise we'll end up with silly questions like: was Indra a king in Uttara Kuru or what Indra a God ruling in celestial Amaravati or was Indra the lighting seen in sky that ancient Hindus were primitive enough to consider lighting a god etc.
Coming back to that verse, it's explanation can be understood by adopting the tripartite lens as mentioned by Veda above. For the purpose of this answer, I shall limit to using only the Adi bhoutika darshana. If you want to understand under adhyAtmika or Adi daivika darshanas, let me know in comments.
Adi bhoutika meaning of this verse:
Ether & Wind are both invisible, the earthly wind exists within the domain of ether; OR Ether is experienced by us only through Sound. So Sound is its expression. Wind is experienced by us through Sound AND through feeling on skin. So Sound and touch are its expressions. Because it has sound quality, it is seen to have 'come from' ether whose only quality is sound, to which wind has added its own quality of touch.
Wind is the carrier of the Flames, the earthly fire exists within the domain of the wind; OR Fire is experienced by us though Sound AND through feeling on skin AND through form/appearance. Because it has Sound & touch qualities, it is seen to have 'come from' wind whose qualities are limited to sound & touch, to which fire has added its own quality of form/appearance.
With me so far?
Flame and water are both either eternally moving in nature or can also remain absolutely still and are both always visible, the earthly water exists within the domain of fire - liquid water is only found when heat exists within a specific range in the universe. OR water can be experienced through Sound AND touch AND form/appearance AND taste! Because it has Sound & touch & form/appearance qualities, it is seen to have 'come from' fire whose qualities are limited to sound & touch & form, to which water has added its own quality of taste.
Next Soil and water co-exist, soil exists in the domain of water, for on a no-water planet, you will not find soil (you will find sand or rocks). OR soil can be experienced through Sound AND touch AND form/appearance AND taste AND smell! Thus it is seen to have 'come from' water whose qualities are limited to sound & touch & form & taste, to which soil has added its own quality of smell.
Thus beautiful knowledge is the meaning of that shloka, from an adi bhoutika perspective.