How does the nearby tab work in Pokemon Go (after 2nd update)?

With the new Pokemon Go update (on 8/8/16), the nearby tab's functionality has been changed significantly. Rather than the old 'tracker' with footsteps*, there is now a page that shows 'Sightings' and 'Nearby.'

I found this question: How do Pokémon "Sightings" work?, which explains how sightings work. However, I still do not understand how the nearby tab works. I took a screenshot from my phone today:

You can see the 'Sightings' at the bottom of the tab, which are described in the above linked question. What I do not understand is the 'nearby' section. In the above example, it appears that a Goldeen is paired with a picture of a location. Does that mean that a Goldeen is nearby? If so, how is that different from the 'sightings' section?

Please do not confuse this question with How do Pokémon "Sightings" work?, as they are meant to be different. That question asks specifically about 'sightings,' while I am asking about the 'nearby' feature.

*the first update got rid of the footsteps, but kept the function of the nearby tab largely the same