Based on your physical exam and current symptoms your doctor is recommending that you undergo a knee arthroscopy to repair or remove your torn meniscus, which is a cushion of cartilage inside of your knee.
Since your meniscus is torn, you are probably experiencing knee pain, especially when your knee is bent. It is also common to feel a clicking or popping in your knee and even have it lock up at times, making it difficult to straighten out again.
Once a meniscal tear is suspected, your doctor will usually recommend possible treatments such as medication, activity level changes and physical therapy. However, since these treatments have not been successful, your doctor feels that a knee arthroscopy is now appropriate for your particular situation.