This problem is describing a situation where a King pays a night 1 inch of gold per day of protection, for a total of 6 inches of gold. The king pays the night at the end of the day for each day, however, the King only cut the 6 inches bar twice. We need to fill the blanks based on this information.
The first phrase says:
The two cuts were made at the "blank"-inch mark and the 3-inch mark.
The first phrase gives us an idea of how the king cut the bar. We know that for the first day, the night has to receive 1 inch of gold, for the second he has to receive 2 inches, and so on. Therefore the "blank" has to be equal to 1, otherwise, the king won't be able to pay the knight after the first day, therefore the phrase is:
The two cuts were made at the 1-inch mark and the 3-inch mark.
The second phrase says:
The king will take the "blank"-inch piece back from the knight and give him the "blank"-inch piece at the end of the second day.
As we understood before, the king divide the bar into three parts: 1-inch, 2-inch, and 3-inch. Therefore, for the second day, the king will take back the 1-inch bar, and give the 2-inch instead. So the full sentence is:
The king will take the 1-inch piece back from the knight and give him the 2-inch piece at the end of the second day.