The quoted sentences are related to the role reversals between Finny and Gene that occur after the injured Finny goes back to school. The lines are part of Gene’s first-person narrative, and he is describing Finny and the changes he has noticed in both of them.
After Finny was injured because of Gene’s reckless, jealous action, he was later able to return to school but could not resume his athletic activities. Finny had always been the athletic one of the pair, and Gene was the intellectual one. Refusing to consider Gene’s confession, Finny decides to invest his efforts in turning Gene into an athlete. Because he needs help catching up with his studies, Gene begins tutoring him. Both boys are surprised at the progress they make. Gene says,
Finny and I, to our joint amazement, began to make flashing progress where we had been bumblers before.
Early in the mornings, they are out by six so Gene can run, while Finny waits at the tree. While Gene is proud of Finny’s academic progress, he is even more proud of his improvement as a runner. In part, this sensation is due to the physical changes themselves, but he also recognizes the positive effects of the enthusiasm that Finny exudes—he fantasizes that Gene will compete in the 1944 Olympics.
Gene’s description of Finny as looking both older and smaller, however, indicates that his former jealousy of Finny is decreasing but also that his pride has a role is diminishing Finny’s importance. The description may also be foreshadowing of Finny's further decline and death.