The stories of Nicodemus and the final appearance of John the Baptist reflects on the faith of many who came to believe in Jesus through the signs he performed (earlier in 2:23-35). The final remark of the narrator in chapter 2: "he himself knew what was in each person," and the introduction of Nicodemus to the story in 3:1: 'Now there was a person, one of the Pharisees" are closely linked. The two stories form a dyptich; both contain a narrative in which the two characters are both firmly entrenched in Judaism.
Both stories open with the claim that Jesus is the unique revealer of the heavenly, and then move to the logical conclusions of that claim. Salvation or condemnation comes from the acceptance or refusal of this revelation.
In the Nicodemus pericope, his misunderstanding of what Jesus reveals allows Jesus to explain further. He says, "that which is born of flesh is flesh, and that which is born of the spirit is spirit." To be born of flesh means to trust what one can observe and control -- making judgments on what one senses in the world about one. Birth in the Spirit brings one into a different way of seeing and understanding. Jesus urges Nicodemus not to marvel at his teaching; rebirth must take place through a gift "from above." Jesus then resorts to a small parable, based on the play between meanings of pneuma. It can mean "wind" or "spirit." Jesus begins with the physical wind, which one can observe. It's a mystery. One can observe it, but one cannot claim to have discovered its origin or destination. On the basis of this observation, Jesus says that it is the same way with those born of Spirit. The Spirit, like the wind, is entirely beyond control and comprehension of human beings. It breathes into this world from another world. Since Nicodemus' response is confused, Jesus chides him by reminding him that he is a "teacher of Israel," yet doesn't understand these things. The idea that life in the Spirit transcends the understanding of this world isn't new in Jewish teaching. It serves to tie Jesus' revelation as an extension of Judaic mystery teachings.