The question is the same as to ask: "When Lord teaches His disciples to say in the main prayer, 'Our Father, may your name be sanctified" (ἁγιασθήτω, sanctificetur), what does He mean? Is not God-Father's name already sanctified?" But it is and is not at the same time. In itself God's name - that is to say, His essence and reality, for "God's Name" denotes not any humanly audible or readable name, but the very reality of God - is not only sanctified but holy in a principal way, that is to say, not even holy, but beyond and supra holy, for everything acclaimed as holy receives holiness from Him. However, for us, humans, His name is to be sanctified, because we do not understand God as He must be understood; we search not for Him, but for things that He may give us; we are not yet like St Thomas Aquinas, who, according to his hagiography, being asked by Jesus "What you want that I may give you" answered by but one pronoun - "You". Thus, for us and in us God's name is to be continuously sanctified as we grow to a greater and deeper understanding of Him, and we should cleanse this name from all alloys of our egotistic and earthly understandings and conceptions.
The same with Jesus who is not somebody to be sanctified, but, together with the Father, the very Principle of sanctification, being Himself beyond and supra holy, for the angelic three-holy praise eternally befits also to Him along with the Father and the H.Ghost (Isaiah 6:3). But He sanctifies Himself in us, for we do not understand Him as He should be understood. Even His disciples, even the 12 chosen of them, and even two of the four most distinguished from the 12 chosen, Jacob and John, and even few days before His Crucifixion and glorious Resurrection, saw in Him just a political King, searching to become chief ministers in His earthly, political kingdom (Mark 10:37).
Thus, Jesus is present in His disciples' hearts and minds, but not in the way He aught to be present, thus He has to sanctify His presence in them, cleanse this presence from all earthly and limited apperceptions, and thus free place in their hearts for the unlimited and infinite, for God's cognition is infinite and awesome, His greatness always uncircumscribable by human intellect (Psalm 145:3), and thus marvel, worship and awe is the only correct attitude of human to God; and this is that "God's name is sanctified" or that "Jesus sanctifies Himself in us", i.e. cleansing us from our idolatrous reductions of Him.
But it also can be understood differently: in the given passage of John the principle of the cleansing, sanctification is "truth", ἀλήθεια, for Jesus asks Father to sanctify His disciples by truth, and truth is His, Father's word (John 17:17), but for Himself Jesus does not ask Father that Father may sanctify Him by His, Father's word, but says that He Himself sanctifies Himself, meaning that in difference from the disciples He does not need a principle of sanctification, the truth and the Father's word, from outside Himself, for Himself is the very fountainhead of truth and of the Father's word, to the effect that neither Father can sanctify anybody but through Jesus. But what then is that Jesus "sanctifies Himself through the principle of sanctification, i.e. truth/the Father's [and His] word"? It means that He manifests the divine word/the truth in His human nature and life, for He cannot but be a perfect human, because He is Person of Logos incarnated in human nature, and since infinite perfect Person of Logos cannot but drive His human nature to perfection, this driving, this gradual manifestation of this nature's perfection in time and history, in the concrete life-drama of Jesus, can be called also "sanctification".
In this sense, yes, Jesus sanctifies Himself, to manifest human nature's perfection, which was not manifested in the history of mankind before, for neither Isaiah, nor Jeremiah, nor Plato, nor Buddha reached perfection of human nature before Jesus' advent. By becoming thus the unique example of human nature's perfection, He enables also His followers to become perfect but only through Him, for we can follow His example only by Him working and acting within us (cf. Col. 1:29). That's why He says that He "sanctifies Himself for them (ὑπὲρ αὐτῶν)", that is to say for all His followers (John 17:19).