What a fascinating question. There are several ways to think about how this would work (in theory, probably not so much in reality), and they're all weird.
The way I'm thinking about it is to take a particular slice of the space-time at a moment in time (in other words, one observer's notion of the where everything is at particular moment of "now"), and finding an object which contains a smaller copy of itself, and the two are actually the same object. Like a hollow sphere which contains another smaller hollow sphere inside, and they are the same sphere.
To make sense of how that would work, we can use a space-time diagram. But before we do that, let's use a space-time diagram to explore a simpler scenario, so that we get comfortable working with them. In this diagram and in all to follow, space is the horizontal axis, and time is the vertical axis:
We haven't messed up the space-time very much here yet. Nothing is going inside of itself. There is an object (perhaps a sphere) centered around x=0, and two circles are drawn in to represent the location of its edges. An open circle on the right side, and a filled circle on the left.
There are also some vertical-ish lines going through the diagram, which represent "world lines". You can think of such a line as the "history" of an object -- where it is in space throughout time.
Finally, there are some cones drawn on the lines. These are "light cones", which represent where an object is allowed to move. The edges of the cones are 45° angles, and are defined by the speed of light. Meaning, if you are at that point in the space-time, then to move along the edge of the cone, you must move at the speed of light. Since nothing can go faster than the speed of light, you can only move in the direction that your light cone is facing. Basically, the cone indicates the direction in which time is flowing.
As time increases, we see that world lines converge toward x=0. The light cones also turn to face inward, which represents that the space-time is getting curved. Gravity is pulling things inward. This would be exactly like a collapsing star (although here I do not have it collapse completely to a black hole. If it did then a bunch of the lines would come together at x=0 and we would get a singularity).
So what's happening to the object represented by the two circles? It is simply shrinking. In the future, it is smaller than it was in the past.
OK, now let's make the object not only become smaller, but also be inside of itself. How would we do it? We'll have to do something pretty crazy to the space-time. Perhaps something like this:
What is happening here?
The space-time is incredibly distorted. It is so distorted that some world-lines are bent all the way around into closed loops. These are "closed time-like curves" (CTCs). If you lived on a CTC, you would travel to your own past! These kinds of curves exist in some metrics of space-time (such as near ring singularities in a rotating black hole, or in
Gödel's metric describing a rotating universe.)
In this case, we have two regions of CTCs which curve in opposite directions. Kind of like a torus, except this is a crazy 4-dimensional torus. It causes the edges of the object to collapse, then move backwards through time, expand again, and then meet back up with itself. In a certain sense, there are times where it exists
twice, one inside of the other. Weird!
There are also three special points in this diagram. One is in the center of the object at x=0. Space-time is behaving very oddly near this point:
Basically we have a point where time has a really difficult time figuring out which way to flow. It is a singularity, but a special kind of singularity and completely unlike what exists in a black hole (a typical gravitational singularity has all paths and light cones flowing into that point). Here, the paths turn very sharply in different directions. Mathematically this is a type of saddle point. The sharp turns indicate extremely strong space-time curvature and tidal forces, and they become infinitely strong at the point itself. An object near this singularity would be sheared apart in space and in time -- some of it thrown into the past as well as the future.
The two other points are the ones in the center of the loops, and represent locations around which time is flowing in circles. They are singularities, but once again they are not gravitational singularities. Instead, they are "rotational" singularities. You could escape from near one, but you would be forced to spiral around and around in both space and time, before finally getting spat out into the future. (Also, since this diagram only shows one dimension of space, these two points are actually a spherical surface in 3D.)
What could possibly cause space-time to behave this way? I haven't the foggiest idea. This kind of metric is totally unphysical -- it can't exist in our universe.
Anyway, now perhaps you can see ways of playing around with the space-time metric to make weird things like this happen.

We could also get an object to exist inside of itself without involving CTCs, but it still requires having regions where time is locally flowing backwards. For instance, we could have something like this:
Here there is a region where time flows backwards for a little while, at the same time that the space is collapsing, and then it reverses again and smooths out. In this case it does this without making any closed loops or singularities, and what we get is an object that is nested inside of itself three times, the middle one moving backwards in time.
But again, I have no idea what sort of real space-time could do this, and it's probably still completely unphysical.
In summary, what would happen if you distorted space-time enough to make an object be inside itself? For starters, there would need to be a region where time is locally flowing backwards. Beyond that, what happens depends on the type of distortion we made, and the potential for weirdness is very high.