In the context $K$ should be treated as an abstract simplicial complex.Recall its definition on Rotman's An Introduction to Algebraic Topology, Chapter 7, p.141:
Defintion Let $V$ be a finite set. An abstract simplicial complex $K$ is a family of nonempty subsets of $V$, called simplexes, such that
(i) if $v \in V$, then $\{v\} \in K$;(this condition seems redundant)
(ii) if $s \in K$ and $s' \subset s$, then $s' \subset K$
One calls $V$ the vertex set of $K$ and denotes it by $\mathrm{Vert}(K)$; a simplex $s \in K$ having $q+1$ distinct vertices(elements in $V$ are called vertices I think, though the author doesn't mention it explicitly) is called $q$-simplex.
Hence $K$ is formally a set. Its element is also sets.
And recall the defintion for barycentric subdivision of abstract simplicial complex in the same page:
Example 7.11. if $K$ is an abstract simplicial complex, we construct its barycentric subdivision $\mathrm{Sd} K$ as follows(Here $\mathrm{Sd}K$ is also an abstract simplicial complex):
define $\mathrm{Vert}(\mathrm{Sd}K) = \{\text{simplexes} ~ \sigma: \sigma \in K\}$;
define a simplex in $\mathrm{Sd}(K)$ to be a set $\{\sigma_0, \sigma_1, \dots, \sigma_q\}$ with $\sigma_0 < \sigma_1 < \cdots < \sigma_q$ (where $\sigma < \sigma'$ means $\sigma \subsetneq \sigma'$).
Hence the vertices in $\mathrm{Sd}K$ is not vertex in $K$. From the definition it's all the simplexes in $K$. So formally the veretices in $\mathrm{Sd}K$ are sets. The simplexes in $\mathrm{Sd}K$ formally are sets consisting sets.
Since both $K$ and $\mathrm{Sd}K$ are sets. Now we can define $\mathrm{Sd}$:
$$
\begin{align}
\mathrm{Sd}: K &\to \mathrm{Sd}K \\
\sigma &\mapsto \{s \in K: s \subset \sigma\}
\end{align}
$$
Maybe an example(taking from John M. Lee Introduction to Topological Manifolds, Example 5.42(c)) is that $V=\{1,2,3\}$, $K = \{\{1\}, \{2\}, \{3\}, \{1,2\}, \{2, 3\}, \{1, 3\}\}$. Then the vertex set of $\mathrm{Sd}{K}$ is $K = \{\{1\}, \{2\}, \{3\}, \{1,2\}, \{2, 3\}, \{1, 3\}\}$ and (I'm not sure if it's right.)
$$
\begin{aligned}
\mathrm{Sd}K &= \{\{\{1\}\}, \{\{2\}\}, \{\{3\}\}, \{\{1,2\}\}, \{\{2, 3\}\}, \{\{1, 3\}\}\} \\
&\cup \{\{\{1\}, \{1, 2\}\},\{\{1\}, \{1, 3\}\},\{\{2\}, \{1, 2\}\},\{\{2\}, \{2, 3\}\},\{\{3\}, \{2, 3\}\},\{\{3\}, \{1, 3\}\}\}
\end{aligned}
$$
Take $\sigma = \{1, 2\} \in K$ as an example,
$$
\mathrm{Sd}\sigma = \{\{1\}, \{1, 2\}\}
$$
I hope this will help. I'm learning algebraic topology too. It's my first time checking content about simplicial complex. If there is anything wrong about the answer please comment. Thanks.
Edit: I think I made a mistake. For the example $\sigma = \{1, 2\}$, the image of it has two choices. Maybe it's not well defined. But ignoring the meaning of $\mathrm{Sd}: C_*(K) \to C_*(\mathrm{Sd}K)$, it seems that $\mathrm{Sd}_\#$ can be defined by adding the subdivision elements together(Formally by the addition of free abelian group).