Translation
Judge not a sage by his caste, value him for his wisdom.
Value the sword, leave the sheath be.
Explanation
Even though the jati system in 14th century India was fairly entrenched, it was commonly accepted that the sadhu or sage was beyond all caste and creed. He was respected for his wisdom. Likewise, Kabir Saheb says, value the sword and not its sheath. Sword symbolizes the very essence of a living being (the Self, or atman) and the sheath symbolizes the physical body.
In Vedanta, the physical body encompasses what we consider the mind, body and ego. Just as the sheath covers the sword, so the physical body veils the atman. In fact, the body is just an appearance of the Brahman. We normally identify with - and hence attach great importance to - our body (mind and ego included). Kabir reminds us of what is truly valuable i.e the atman which is verily the brahman.
A nuance here is that Kabir does not tell us to completely disregard the body. He uses the phrase 'paḍā rahan do' which roughly translates to 'leave it be'. After all the sheath has its use, but you don't value it above the sword. As such, we see that Kabir does not preach asceticism, but rather the art of living in this world (samsara) while being established in the Truth.