Megillah, Chapter Three, Mishnah One
The first three mishnayot of this chapter deal with the holiness of the synagogue and the articles found in it. Our mishnah deals with what one may do with the proceeds of a sale of the synagogue or the things in it.
1) Townspeople who sold the town square, they may buy with the proceeds a synagogue.
a) [If they sold] a synagogue, they may buy with the proceeds an ark.
i) [If they sold] an ark they may buy covers [for scrolls].
(1) [If they sold] covers, they may buy scrolls [of the Tanakh].
(a) [If they sold] scrolls they may buy a Torah.
2) But if they sold a Torah they may not buy with the proceeds scrolls [of the Tanakh].
(a) If [they sold] scrolls they may not buy covers.
(2) If [they sold] covers they may not buy an ark.
ii) If [they sold] an ark they may not buy a synagogue.
b) If [they sold] a synagogue they may not buy a town square.
3) The same applies to any money left over.
4) They may not sell [something] belonging to a community because this lowers its sanctity, the words of Rabbi Meir.
a) They said to him: if so, it should not be allowed to sell from a larger town to a smaller one.
Section one: One can sell an object and buy something that is somewhat holier. The town square has some holiness to it because it is occasionally used for gathering in prayer, such as during a public fast (see Taanit 2:1). Scrolls refers to books of the Tanakh not part of the Five Books of Moses.
Section two: Conversely, one cannot sell an object and buy something with an object of less holiness.
Section three: If there is money left over from a permitted sale then they must still use that money to buy something with greater holiness. Thus if they sell covers and use the proceeds to buy scrolls and there is money left over, they must use the proceeds to buy other scrolls, or a Torah.
Section four: According to Rabbi Meir there is an additional restriction when it comes to selling holy items. The community cannot sell an item that belongs to the community to an individual. So if the members of the synagogue own scrolls and they wish to sell them to buy a Torah, they may not sell the scrolls to an individual. This means that according to Rabbi Meir there seems to be holiness in the community. The item is more holy because it is owned by a community, an entity which has greater holiness than an individual. Alternatively, an item is holier if it is used by more people.
The other sages respond that it is problematic to quantify holiness based on the number of people within an entity. If a community is holier than an individual, than a large community is holier than a small community. Since this doesnt make sense, the sages reject Rabbi Meirs halakhah altogether.