What can be the meaning of the picture within the painting Las Meninas?

I would direct you to Carlos Fuentes' work, The
Buried Mirror. In the section where he talks about "El Siglo del Oro,"
Fuentes explores the impact that Cervantes' work, Don Quixote,
holds on the Spanish narrative in literature.  One of the points he makes is that
Quixote reflects two realities.  One distinct expression is the vision of dreams, hopes,
and ideals, as represented with Quixote.  Another is the banal, daily existence of
Sancho.  Between both is the modern human being, struggling to straddle both worlds and
seeing themselves in these two lights almost simutaneously.  It is in this light that
Fuentes discusses Velasquez's work.  The "picture within a picture" is used to explore
what is subject and object.  Are the dolls the subject?  Is the painter?  Is the
viewer?  In the end, these questions as to where reality is centered occupies the
central importance of Fuentes' analysis.  Fuentes' analysis is that the technique of
"picture within a picture" is one that drives the questioning of consicousness that
emerged within the modern setting.  The timing of the Golden Age, Cervantes' work, and
Velasquez's painting is one where distinct questions about what constitutes modernity
and antiquity emerged.  Fuentes makes the argument that writers and thinkers of the time
period struggled with this question, making them both of their time and outside of it. 
In this light, Velazquez's painting is one where uncertainty exists, similar to the
struggle between past and modernity.  The French philosopher Michel Foucault articulated
the same idea upon examining the portrait in his own
view:

We are looking at a picture in
which the painter is in turn looking out at us. A mere confrontation, eyes catching one
another's glance, direct looks superimposing themselves upon one another as they cross.
And yet this slender line of reciprocal visibility embraces a whole complex network of
uncertainties, exchanges, and feints. The painter is turning his eyes towards us only in
so far as we happen to occupy the same position as his
subject.

It is precisely this analysis
of subject/ object, modernity/ antiquity, and dreams/ reality that the "picture within a
picture" element of Velazquez's work
evokes.