You're right. You knit the first 3 stitches of the row, then do a yarn over followed by a decrease
(k2tog = knit 2 stitches together), repeat yo & k2tog 3 more times, then knit the last 2 stitches.
The yo coupled with the k2tog maintains the same number of stitches while creating a lacy effect. (The yo increases the number of stitches by 1 while the k2tog decreases the total number of stitches by 1.)