Using nested git repositories in git is not possible and thus this also applies to git-annex. However, here is a good workaround that I found:
Rename the .git directory of the nested repo to dotgit (or similar), git annex add it and then create a symbolic link from .git to dotgit. It's important that the link is created only after the nested repo has been git annex add'ed. Also, the link needs to be created manually on each clone. Finally you'll need to hide the dotgit directory from the nested repo itself by adding /dotgit to dotgit/info/exclude.
mv nested/.git nested/dotgit; echo "/dotgit" >>nested/dotgit/info/exclude
git annex add nested; git commit -m "add nested"
cd nested; ln -s dotgit .git # needs to be done on every clone

I agree, submodules are the usual way to nest git repositories, and will more or less just work with git-annex.
I think that the author of this tip is wanting to version control the contents of
.gititself. Eg, to version control.git/configand.git/hooks/.One problem with this approach is that when the outer repository has "dotgit/annex/objects/
files added to it, runninggit-annex dropinside the nested git repository will drop the content, but the outer repository will still contain a copy too. You would have to usegit-annex unused` to eventually clean up those copies. And it stores 2 copies of every annexed file to use it this way.Using nested git repositories is well possible; if they are checked in they are called submodules, otherwise they just sit there unadded.
Apart from some odd quirx you never run into in normal operation, submodules work fine also with git-annex.