Raglan seams go from the underarm to the collar. In this pattern, you're creating the raglan seams by knitting 1, decreasing, then continuing on with the row. That decrease will be the raglan seam on the finished garment. When joining the sleeves to the body, you would seam it up after the knit 1 and before the decreases (SSK or K2tog).
If you want to knit this in the round, leave out the K1 and do a double decrease instead of the SSK on the body and the corresponding K2tog on the sleeve.
Does that help? It makes perfect sense in my mind, but I'm afraid I may just confuse you. LOL