In this quote, Nick is referring to a man he has just met named Mr. Balfour, who recently converted from a libertine lifestyle to a more pious one. Nick is surprised and amused by the sudden change in Mr. Balfour's behavior and attitude, which is why he is tempted to laugh whenever Mr. Balfour speaks. The quote is an expression of Nick's surprise and amusement at the sudden transition from libertine to prig that Mr. Balfour has made.