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Part of the difficulty is that he is quoting Varro. So, what is in view is Varro's understanding of virtue. With that said, there are two points that are important in discussing virtue.
First, there is the definition of virtue:
And consequently he thinks that the primary objects of nature are to be sought for their own sake, and that virtue, which is the art of living, and can be communicated by instruction, is the most excellent of spiritual goods.
According to Augustine, Varro believes that virtue is the art of living well. Therefore, when a person lives well, he can be said virtuous. This, of course, begs the question of what it means to live well. Augustine does not leave us guessing. He writes:
For virtue makes a good use both of itself and of all other goods in which lies man's happiness; and where it is absent, no matter how many good things a man has, they are not for his good, and consequently should not be called good things while they belong to one who makes them useless by using them badly.
Varro, according to Augustine, argues that "living well" entails the ability to know how to use things well. This is what brings happiness. Practically speaking, using wealth well, using resources well, using your body well - all of these things should be governed by virtues, which leads to happiness.
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