Petty Commodity production refers to that stage where the means of production remain in the hands of direct producers i.e. peasants who produce their own food, and have their own means of production for spinning and weaving. Only a small portion of their production is then produced as commodities to be exchanged for those things they cannot produce for themselves. These other commodities are in turn produced by petty commodity producers in the form of artisans such as blacksmiths, goldsmiths, carpenters and so on.
At this stage, value takes a social form as exchange value because these commodities are brought into systematic relation with one another, which means that the quantity of abstract labour-time contained in them is measured in the market.
But this is not yet a situation of generalised commodity production let alone capitalism, precisely because commodities form only a minor part of total production. Capitalism cannot arise until there is generalised commodity production, because it requires a market of a minimum size to justify production on a large scale. Generalised commodity production cannot arise until such time as the direct producers are dispossessed of their means of production, and therefore, have to enter the market as buyers of the commodities they can no longer produce for themselves, and at the same time appear in the market as sellers of their own labour-power.