The answer to your question comes in the 1st line of the 5th paragraph:

The great error in Rip's composition was an insuperable aversion to all kinds of profitable labor.

Having an "aversion" to something means having a strong dislike for it.  Rip strongly disliked "profitable labor."  The narrator goes on to explain that his dislike for work does not come from his inability to persevere at something.  Rip could, after all, sit for hours with a fishing pole even if he was catching nothing or walk for hours through the woods shooting squirrels.

A key word in this line is "profitable."  The fact is, Rip Van Winkle does plenty.  He cannot, for example, say no to helping a neighbor and as mentioned, he hunts and fishes with regularity.  This description of him seems to come more from the perspective of his nagging wife who believes her husband is basically good for nothing.  According to the dynamics of his marriage relationship, Rip's great error of character is that he has failed to provide for his family in the way a man in his historical era would.  This description deems Rip a failure by the standard of doing something profitable with his life as compared to something frivolous.