"He knew where his pen was."
Translation:Li sciis, kie estis lia skribilo.
Because "sia" is only used for things that belong to the subject of the clause.
Here the subordinate clause is "..., kie estis lia skribilo". The main verb is "estis" and its subject is "lia skribilo".
The pen does not belong to "lia skribilo" (the subject) and so it cannot be "sia skribilo".
So then if it's a subordinate clause why do we need the past tense in it? This is basically reported speech even if the reporting verb sciis doesn't imply actual speech, so shouldn't the verb in the subordinate clause be in the present since he knew where it was at the time when he knew that and not at an earlier time?
Good point! That would match what I thought I had learned about Esperanto sequence of tenses.
So it seems that a better translation would be "He knew where his pen had been".
I thought that 'sia' was used to make it clear that it was his own pen and not someone else's. Now it appears that that there is some much more complicated reason For using 'sia'.
sia is used when you talk about something belonging to the subject of the verb.
The verb here is estas and the subject is the skribilo.
The pen can't be its own own, so you can't use sia skribilo here -- in general, sia cannot be part of the subject of any verb.