It's quite simple. There's an A list and a B list.
The A list is the one we're interested in and that can have from 17 up to 25 players in it. The first 17 are described as 'free' players, meaning they can be any nationality, either foreign or association trained.
In a squad of 25, a minimum of 8 must be locally trained of which no more than 4 must be association trained (i.e. locally trained but by other clubs). So you couldn't have 5 association and 3 club trained players in a 25 man squad.
If you can't name 8 locally trained players then your squad size is reduced accordingly. If we can only name 4 locally trained players, we can only name a 21-man squad.
Currently we only have Hart as club trained, which means we can only have a maximum squad of 22.
The B List is for younger players who fulfil certain criteria (younger than 22 I think and who have been with the club for 2 continuous years since their 15th birthday). You can have as many of those as you want.
The outcome is that if we keep Clichy and buy Sterling we can only add another two association trained players to the CL squad. It doesn't matter which list players like Denayer, Rekik & Lopes go on, assuming they all class as B list players.