Suppose you have the following sentence:
(1) You need food.
If we turn this sentence into an it-cleft, it becomes:
(2) It is food that you need.
And if we turn this it-cleft into a "wh- question," we get:
(3) What is it that you need?
Here, in (3), we have what's called "subject-auxiliary inversion"—the auxiliary (is) moves to a position that precedes the subject (it). But if we embed a wh- question into a declarative sentence, there is no inversion (at least in Standard English). So, if we embed (3) into a declarative sentence, we would get something like (4), where there is no inversion:
(4) I know what it is that you need.
The complementizer (that) is optional in this sentence, so we can change this to:
(4') I know what it is you need.
And that's basically the sentence you were asking about, or at least a declarative version of it. Depending on the intonation (or punctuation in writing), the sentence in (4') can become a question without any change in word order, in which case it may mean what DrMoishe Pippik suggested in an earlier answer: "Do you think that I know what it is that you need??"