What is the most likely diagnosis? Why?
This lesion most likely represents an ependymoma. It is a centrally located enhancing lesion with blood product at the lower end (poorly formed hemosiderin cap).
What do the cystic areas above and below the enhancing component likely represent?
As they are located centrally within the cord and are not surrounded by enhancement they most likely represent a tumour syrinx rather than intra-tumoral cysts.
An enhancing mass is present within the substance of the cervical cord centred at the C5 level. It is of intermediate signal intensity on T1 and T2 weighted sequences and demonstrates contrast enhancement. It is surrounded at either end by dilated cystic spaces which are not surrounded by enhancing tissue and may represent a tumour syrinx rather than part of the mass itself. There is faint signal drop on on T2 weighted images which may represent peripheral blood product, although it is not pronounced.