In the essay that this quote is taken from, Hazlitt discusses virtue and what constitutes virtue. Hazlitt is gently mocking the actions of humans in trying to prove themselves to be virtuous by imagining what a superior race of beings would think if they arrived on earth and saw the way that man thinks that he is virtuous whereas the reality is man, in essence, is not. Elsewhere in the same essay, Hazlitt writes:
Vice is man's nature: virtue is a habit, or a mask...
To Hazlitt, therefore, no matter how much humans think themselves to be virtuous, the reality is that they are defined by vice to their very core, and virtue is only a "mask" that tries to conceal the vice that lies underneath the veneer of good works and attitudes that men try to cultivate as a habit. The quote identified in this question thus cuts through man's good opinion of himself by imaging a superior race of beings coming and seeing man for what he really is: a creature driven by vice yet deluding himself that he is actually virtuous. Hazlitt is under no such illusion about the real state of humans.