The plot of Thr3e moves forward driven by Slater's bombings and riddles and by Kevin's mental quest to find what sin Slater is demanding that he confess to:
"Three, the riddles keep coming until you confess. ... Understand?"
"Please, if you'll just tell me what to confess, I'll confess. Why are you using riddles? Can I confess without solving riddles?"
Slater remained silent for a moment. "The answer to the riddles and the confession are the same...."
Regarding the quotation, "No, it couldn't be that. He was just a kid then," Kevin has suddenly thought of a possible event that may be what Slater is pointing to through his riddles. The event was bad enough for Kevin to consider it yet so far back in his childhood that it seems improbable. This relates to the plot because (1) plot momentum has moved forward--with increased elements of tension and suspense--toward the inevitable disclosure of the answers (Was it that or not, and what was that?) and because (2) the element of internal conflict within our sympathetic hero has just heightened: he may know what he did, and it must be a source of great guilt and regret for him to have even thought about it.
This quotation also relates to plot in that it provides intense foreshadowing of future disclosures of Kevin's unfortunate past. As reinforcement of the power this clue holds in terms of foreshadowing and advancing the plot, soon Kevin will receive another phone call from Slater during which he will feel his suspicion is confirmed:
It had to be the boy! God in heaven, save me! Kevin slumped slowly to the floor. This couldn't be happening. "Oh God--"