Sarco,
The paragraph you labeled as "1)" is the definition of "knives and daggers". That's all that section does; it defines the terms. It doesn't restrict possession or carry or anything else. The most important part is that knives with a blade of 3" or over fall under this definition.
The reason for paragraph "2)" is related to state law. California law lets you carry any size folding knife (with a few restrictions, including knife design and schools). California law also lets you carry any size fixed or folding knife that's openly carried in a belt sheath (with school/college restrictions). That's all well and good, but cities didn't like people walking around with bowie knives in belt sheaths. So they passed their own, complementary laws, that restrict the open carry of knives. So state law restricts concealed carry, and local law restricts open carry.
Under the local L.A. county law, you can't carry a knife of 3" or more in plain view. My understanding is that if any part of the knife is in plain view, such as the top of the knife or the clip, that's enough for "plain view". You can carry a 5" folder that's completely concealed, but you can't carry a 3.1" folder with any part exposed. The law was passed more for general citizens' piece of mind than anything else. It was intended to restrict fixed blades, but it applies to folders as well.
Note that there's an exception to the L.A. city and L.A. county knife laws (the county and city have pretty much identical laws). You can carry a "knife or dagger" openly if you have a legitimate occupational, recreational, or religious purpose. I've never seen those terms defined anywhere by a court or anyone else. They could mean that you have to be a drywaller on your way home from work with your 4" drywall knife, or a fisherman on his way to the lake with a 4" fillet knife. Or they could mean something more general. It's really vague. So if you're prepared to make a case for your carrying the knife for one of these purposes, you can carry your 4" folder openly and take the chance you have to deal with it sometime.
Note that these L.A. laws are little-known, and that state law is much more important for knife carry.
There's another thing that's significant, especially in Los Angeles: The police don't know the knife laws, especially the younger ones. A friend of mine is a LAPD sergeant at a busy, urban station. He has sat in as watch commander numerous times. During his watches, officers have arrested people and brought them to the station on a charge of violation of California Penal Code Section 12020, carrying a concealed dirk or dagger. (The specific section is 12020(a)(4).) He's taken one look at the knife and told the officer s/he screwed up, and to let the knife owner go.
There's an exception to 12020(a)(4) at 12020(a)(24) as follows: "(24) As used in this section, a "dirk" or "dagger" means a knife or other instrument with or without a handguard that is capable of ready use as a stabbing weapon that may inflict great bodily injury or death. A nonlocking folding knife, a folding knife that is not prohibited by Section 653k, or a pocketknife is capable of ready use as a stabbing weapon that may inflict great bodily injury or death only if the blade of the knife is exposed and locked into position." The typical folder on these forums is not prohibited by 12020, whether it's open or concealed (again: can't carry onto school grounds).
If you're questioned by an officer, be polite, but be prepared to explain why your knife is legal. This means you need to know the state laws in depth. Go to a law library (in courthouses; also, your county should have a main one) and ask the librarian how to research the issue. You should know Penal Code sections 12020, 653k, 626.9, and maybe 626.10 (I could be leaving one or two out). You can use Jim March's knife laws page, which Medusaobongata cited above, as a starting point. If you get the sense the officer is not receptive to your explaination, politely ask for the supervisor to come so you can demonstate why your knife is legal. If you're arrested anyway, ask to talk to the watch commander about the same thing before you're booked.
If you're not the type to attract attention, though, you probably won't be questioned about your knife and won't have to ever go through these steps. No one will find a concealed knife unless you're seached. Cops are used to seeing people with folders clipped to their pants pocket (folders *are* legal, despite the restrictions). But at least be prepared, which you're doing right now.
Regards
Johnny
