What is this passage trying to say about Darwin's difficulty in explaining variation?
Remember this is all before the rediscovery of Mendel and the understanding of things like recessive traits and inheritance of discrete rather than blended traits. The problem is that, given an environment in which large beaks are beneficial, over geological time selection will tend to eliminate the small beaks. Then, if the geological environment changes such that small beaks are favored, there are no small-beaked individuals to benefit from the change: they would have been eliminated gradually during the long time when long beaks were preferred. The paradox or difficulty Darwin had was explaining how populations could maintain sufficient variability for selection to act to generate new traits.
This issue is similar to the first: the process of natural selection is all about what happens to existing populations. It explains what happens when you have variation existing in a trait. Natural selection by itself does not explain how mutations could occur to produce those new traits.


Darwin was concerned about both of these issues because at the time he saw them as serious threats to his theory (and specifically, like most good scientists, he worried that these things could mean that he was wrong). It seemed like a weakness of exactly the type he saw in prior works on transmutation of species that he was trying to work beyond. It took a few decades and a lot of scientific progress including the rediscovery of Mendel and the Modern synthesis for these problems to be truly worked out. As for Darwin, the best he could come up with was his somewhat-Lamarckian pangenesis idea, which he defended strongly.