This is a good guess, but not quite. A nested hierarchy is a conceptual structure that has a lot of disparate applications. In fact, in general, they have nothing to do with life forms. Only in the biological application are "life forms" relevant. "Common building blocks" might be a partial answer, but it isn't enough that things have common building blocks in order to fit into a nested hierarchy.
If you think of a book that someone wrote, back when manuscripts were copied by hand, and if the book was popular, you can typically fit the history of the book into a nested hierarchy. Consider that the book goes to two copiers who each make a couple of modifications (accidentally or deliberately). Then, each copy goes off to two more copiers who make their own modifications. Even if the oldest three copies get destroyed, you can reconstruct (with high confidence) what the original looked like from the remaining four, and even what the other two looked like.
The process for doing this involves arranging the four copies in a nested hierarchy. You cluster them by similarity and recognize that there were two intermediate copies and one "grandfather" manuscript. This arrangement is called a "nested hierarchy." It's a tree-like structure with clear ancestors and descendants wherein if there are two ancestors of a node, one of the ancestors must necessarily be an ancestor of the other ancestor.
Again, it isn't enough that there be common building blocks. You couldn't do this with different books, even though they are from the same language and use many of the same words.
