The above Talmudic law refers to the particular kinds of lesions that must be examined by a Kohen (priest) to determine whether they are ritually clean or contaminated. The Talmud states that a Kohen is not eligible to pass judgment on lesions affecting his own person, since he cannot have the necessary objectivity where he is involved.
This statement has been interpreted homiletically to mean that a person is capable of recognizing all defects except his own; a person will tend to deny his own faults, although he will easily recognize similar flaws in others.
The Baal Shem Tov gave this statement yet another profound interpretation simply by moving the comma ahead by one word. In his formulation, the statement reads, "A person can see all defects on the outside, [if they are like] his own." We see in others only the sort of defects that exist in ourselves. The Baal Shem Tov taught that whenever we find fault with another person, we should analyze ourselves carefully to discover where that same fault exists within ourselves. We will deny it vehemently, and project it onto others.
The Talmudic commentaries anticipated modern psychological discoveries by many centuries. "Denial" and "projection" go hand in hand to focus on others and prevent us from making the necessary improvements in our character.