The coronal and sagittal images clearly show Grade 3 signal in the middle and posterior horns, respectively, of the medial meniscus. This represents a meniscal tear. The tear is the band of high signal intensity crossing the meniscus and extending out to its inferior surface. The meniscus normally appears as a dark triangle on these sections -- compare the torn portions with the normal lateral meniscus on the coronal view and the normal anterior horn on the sagittal view.
You may be wondering what the term "Grade 3 tear" really means. This is one of the grades in a grading scheme proposed by Lotysch, et al (1). These grades were correlated with pathological findings by Stoller et al (2). This grading scheme is shown in the table below.
MR GRADE MR APPEARANCE PATHOLOGICAL CORRELATION
1 an irregularly marginated focal myxoid, mucinous or intrameniscal signal which hyaline degeneration does not abut or communicate with the superior or inferior surface of the meniscus 2 a primarily linear signal which more extensive bands of mucinous does not abut or communicate degeneration with the superior or inferior surface of the meniscus 3 linear (3A) or globular (3B) tear within the fibrocartilaginous intrameniscal signal which substance of the meniscus which does abut or communicate may or may not extend through the with the superior or inferior meniscal surface surface of the meniscus
The high signal intensity stuff seen posterior to the medial femoral condyle is fluid within a popliteal cyst. Normally, a small recess of the knee joint capsule lies medially between the tendons of the medial head of the gastrocnemius and the semimembranosus muscles. Occasionally, the synovium can herniate posteriorly through this recess, producing a popliteal cyst, as in this case. These cysts are usually associated with a knee effusion. They can be fairly small, such as this one, or can herniate extensively down the calf. Cases have been reported of extension distally as far as the ankle, and rarely, they may extend up into the thigh. If a popliteal cyst ruptures, it usually causes pain. This pain can sometimes mimic that of deep venous thrombosis.