Translation: The Supreme Lord is situated in everyone's heart, O Arjuna, and is directing the wanderings of all living entities, who are seated as on a machine, made of the material energy.
Explanation: In the last two verse Krishna spoke about the influence of svabhava or intrinsic nature that determines his actions. Specifically he talks about Arjuna's svabhava as a warrior that will force him to engage in warfare even if he tries to suppress it. Now, in order to prevent Arjuna or us to contemplating that savabhava or nature is the only factor that determines our actions, Krishna clarifies by speaking His own role in this.
Krishna as the Supersoul is the witness to all activities of the living entity. Based on these activities the Supersoul instructs material energy or maya to construct a particular kind of body. The soul then is acts as per the abilities and limitations of this body. One who has done pious activities get the body of the demigod and those with impious may get the body of an animal or plant.
The influence of the Supersoul is even beyond the determining the type of body. As the sanctioner, He also makes the body-machine work. Even though the soul is seated in the machine, he does not really know how to operate it. The soul desires and the Supersoul operates the machine based on these desires. Thus Krishna is instructing Arjuna that He is the one who is controlling the type of body and its activities.
Therefore Srila Prabhupada comments, "The living entity is not independent. One should not think himself independent of the Supreme Personality of Godhead. The individual is always under the Lord's control. Therefore one's duty is to surrender, and that is the injunction of the next verse."