He's making the "As above, so below" symbol. Baphomet is a symbol for the hermetic principle of duality. Thus the hermaphroditic appearance. His phallus is the Caduceus which symbolizes Kundalini rising up the chakras. The flame above his head symbolizes enlightenment, which is achieved once the crown chakra (AKA pineal gland) is activated.

This Sabbatic Goat depiction was created by Eliphas Levy (a 33rd degree Mason) in the 19th century and is mostly symbolism. But it encapsulates all of the hermetic beliefs that these Masons practice.