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Scholastics spoke about essences as those properties which make things the sort of things that they are. Essences, for them, were an obscure and complex matter. Locke attempts to show in Book 3 that our abstract general ideas are what really do this work of sorting particular things into classes. Essences, which caused so much consternation for so long, are nothing but general ideas of the mind.
These general ideas are formed by gathering together ideas of particular things and attending to the similarities among these things. For instance, to form the idea of "cat" I would take my ideas of Frisky, Snowball, Felix, and Garfield and abstract out the tail, the furriness, the size, the shape, the meow etc. I would take all of these similar observable properties and forge them into a new idea, the idea of "cat." This new general idea is what determines what in the world counts as a cat. If an animal fits my idea, then it is a cat. If it does not, then it is not.
This method of individuating sorts makes categories entirely conventional rather than natural. Locke believes that there are no natural kinds in the external world. Instead, there is a continuum of nature, and we impose boundaries among chunks of this continuum for our own purposes.
Locke calls the essence that is responsible for sorting individuals into classes the nominal essence. The nominal essence, again, is just the abstract general idea, which is just a collection of observable properties. In addition to the nominal essence, objects also have a real essence. The real essence of a thing is based in its internal constitution. The real essence is that part of the internal constitution that gives rise to the observable qualities that make up the nominal essence.
Though a real essence has a basis in the world, rather than just in our minds, Locke argues that it cannot be used to sort things into natural kinds. This is so because, first of all, we cannot observe the internal constitution of things. In addition, even if we could observe the internal constitution of things (say, with a powerful microscope) real essences still could not help us sort things into classes. The real essence is itself determined by the nominal essence. Internal constitutions give rise to a myriad of observable properties. It is only the parts of the internal constitution that gives rise to those properties included in the nominal essence that become a part of the real essence. What counts as the real essence, then, is based entirely on how we carve up nominal essences.