Welcome to KH!
Essentially, you're binding off the pocket sts on the front and replacing them with the pocket lining sts which are on a holder. The pocket lining will go in behind the knitted front of the sweater.
For the smallest size:
RS row, k5, moss st 3, cast off 21, moss st 6.
WS row, moss st 6, moss st over 21 pocket lining sts from holder, moss st 3, k5.
From here on you'll continue working across the rows in pattern. The front of the pocket has been cast off and the lining sts have taken its place.
Here's a picture and pattern link. Very sweet little jacket and booties.