In Hard Times by Charles Dickens, the scene in which Sissy and Bitzer are asked to define a horse shows that _____.

It shows that knowledge cannot always be neatly encapsulated in precise definitions, by propositional logic. As well as deriving from abstract thought, knowledge can also arise from practical experience; most of what we learn in life comes from engaging with the world around us. Sissy Jupe knows more about horses than Mr. Gradgrind will ever know, even though she can't define exactly what they are. For her, as for most of us on a daily basis, knowledge is about doing, not thinking.
Of course, thinking is absolutely essential, and sometimes it's necessary to reflect on the precise meaning of something. This can be very helpful and can give us the kind of definitions you'd find in a dictionary or encyclopedia. But in our everyday world, we come to know things primarily by direct experience of them. I may not be able to give a very precise definition of a tree, but that doesn't mean I don't know what it is. I have knowledge of trees by encountering them every day. I know what they are by touching them, walking around them, climbing up them, or swinging from their branches. For Mr. Gradgrind, however, this would not be enough; what he wants is facts, and that means the kind of precise definition you'd find in a dictionary.
Experiential knowledge isn't enough, to be sure, but then neither is Mr. Gradgrind's approach. We need both abstract and practical knowledge: a combination of what Mr. Gradgrind teaches and what life has taught Sissy Jupe.