Cajal inferred the flow of information between neurons from their structure and relative position.  His ‘Law of Dynamic Polarization’ posits that each neuron is polarized: it has dendrites, through which signals are received, and an axon through which signals are transmitted to the dendrites of the next cells in the pathway.  Thus, simply by observing the morphology and location of neurons in a tissue, he was able to discern the direction of signal transmission.

While this was relatively straightforward in the retina, which receives outside stimuli arrive from a particular direction and must be carried inward, Cajal’s real genius was revealed in the deduction of information flow in a tissue such as the hippocampus, where the sites of input and output were not immediately obvious.  

The hippocampus, named for its resemblance to a seahorse (genus Hippocampus), comprises the Horns of Ammon (Cornu Ammonis, or CA regions), the dentate gyrus, and the subiculum.  It receives signals from various parts of the brain via the entorhinal cortex, and signals flow through the hippocampus in the path shown by Cajal above (dentate gyrus  CA3  CA1gyrus  CA3 → CA1); its output travels through the fornix to the anterior thalamic nuclei and other destinations.  Prior to Cajal’s observations, the fornix was thought to be a source of input to the hippocampus.