The line "He prayeth best, who loveth best" is the moral the Mariner learns from his supernatural journey. It echoes the theology of Augustine in Confessions, which Samuel Taylor Coleridge was very likely intentionally referencing in writing this poem. (Coleridge was a religious man very concerned with theology, even changing denominations of Christianity a few times in his life. An exploration of his collected notes also shows he was continuously reflecting upon his evolving belief system.)
The line referenced in the question makes more sense if it is read in its completed thought. The Mariner says:
He prayeth best, who loveth bestall things both great and small;for the dear God who loveth us,He made and loveth all.
Together, these lines make sense of the plot of the narrative while echoing Augustine's theological belief about the importance of loving all of God's creatures equally, even the lowest of them.
In Confessions, Augustine states:
The wicked are displeased by your justice, even more by vipers and the worm which you created good, being well fitted for the lower parts of your creation.
In other words, it is wicked to be "displeased with" any of God's creatures, even the lowest of creatures (vipers and worms). If you think about it, Biblically, snakes were cursed to go on their belly in the Garden of Eden, and worms are Biblically referenced in moments of death described. Since snakes have connotations of evil and worms connotations of death, it is not surprising why one may see them as lesser creatures. However, in Augustine's mindset, all creation is "good" because all creation was made by and called "good" by God in Genesis.
This theological perspective is exactly why the Mariner earns his curse by killing an albatross so flippantly. At first, his crew sees the killing of the albatross as something wicked because the wind that drives the ship fails when the albatross dies. However, when the fog clears, the crew changes their tune, celebrating the death of the albatross because the thick fog has lifted. Clearly, the crew bases their ideas of what is sinful or good upon how some action affects them. Perhaps their self-centered view of morality is why they end up suffering to the point of death while the Mariner stays alive.
This idea of valuing all of God's creatures is also why the Mariner must undergo such cruel and haunting penance, with the albatross hung around his neck as a symbol of his guilt. This theological view also explains why the Mariner's fortunes improve after he finally sees the beauty in creation toward the end of the tale. Of seeing the snakes, the Mariner says:
No tongue their beauty might declare: A spring of love gusht from my heartand I blessed them unaware.
In this moment, the Mariner learns to love the "lowest of creatures"—a sort of sea-viper or sea-worm, if you will—and the curse is broken. He spreads this theological view around like a...
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madman, but given his intense experience learning the lesson, it is not hard to imagine why.
Let's see the full idea, which comes at the end of Coleridge's poem about a man possessed:
"...He prayeth well, who loveth wellBoth man and bird and beast.He prayeth best, who loveth bestAll things both great and small;For the dear God who loveth us,He made and loveth all."
This is what the Ancient Mariner learned upon the sea; this is the wisdom he received from what he had done and what he had seen.
Remember, the Ancient Mariner thoughtlessly killed an albatross and it was hung around his neck by his fellow shipmates. After a long time of torment on the sea, and after everyone on board was lost except for him, the Mariner came to see a single, elemental truth: Thou shalt not kill. Moreover you should respect and love all of God's creatures as He does, no matter how big or how small, smart or ignorant, slimey or elegant. If you come to know and respect God, pray to him for your salvation and the salvation of all of life, then you will know the true meaning of love.
That's what those words mean... clear and simple.
The quotation comes from stanza 23, in which Coleridge, through the mouth of the mariner, articulates what he believes to be the proper relationship between man and God's creatures, and by extension between man and God.
During his epic sea voyage, the mariner fatefully killed an albatross, bringing bad luck to his shipmates, all of whom died of thirst as their ship bobbed lifelessly upon the still ocean. Thankfully, however, the mariner appears to have learned his lesson and repented of his sins. For now he tells the wedding-guest just how important it is to respect all of God's creatures. Though he doesn't say so explicitly, this applies to our fellow man, albatrosses, and even large, scary-looking sea snakes like the one that the mariner encountered early on in his voyage.
Like the good Romantic he is, the mariner believes that everyone and everything in this world in somehow connected. We are all part of a primal unity that joins us together in God's creation, a unity in which all our superficial differences have been obliterated and in which there is complete equality between flora and fauna, man and beast. To destroy any part of that divine creation—as the mariner did when he killed the albatross—disrupts the delicate balance of nature, and in so doing damages us.
As always with any question that focuses on specific quotations, it is incredibly important to focus on the context of the quote, or what comes both before and after it to help understand the meaning of the specific quote you have extracted from the text. If we have a look at the quote you refer to in this brilliant poem, we can see that this famous line is actually part of a stanza that comes towards the very end of the poem, and is used to sum up the moral of the story:
He prayeth best, who loveth bestAll things both great and small;For the dear God who loveth us,He made and loveth all.
The moral of the story therefore relates to the way in which having a right relationship with God, measured by our ability to pray, is related to our ability to love all of God's created order that surrounds us rather than just man. To have a right relationship with God, this stanza suggests, it is necessary to realise that God made and loves everything in this world, not just humans.