You missed part of the dialogue...he asks the kid if he does well in school, to which he replies yes. Costello says, "Good, so did I...they call that a paradox" - the paradox being that the mob boss, who has made a living in crime, was once a promising student, which is the inverse of what young schoolchildren are taught to expect. "They" (the law-abiding establishment) tell us when we're young that the successful people - the captains of industry and commerce and politics - are the ones who followed the rules, turned in their homework and went to bed on time, while the lowlifes who end up pimping and drug-dealing in the back alleys were the slackers who got C's and D's. The paradox Frank references is that he is living proof of this not being the case. This conversation also foreshadows Colin's future corruption and sets up a contrast to the conversation years later where Billy (diCaprio's character) says to Frank "I'm done with school, school's out," and Frank says, "Maybe someday you'll wake up." The brilliance of the script is seen in that all of that is conveyed in under 10 words.