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Mr. Shandy asks Toby what the racket is upstairs—it sounds like a party on the roof. Toby begins to answer, but he doesn't get far. Tristram interrupts him, because you can't possibly understand what Toby's about to say until you learn a little more about him.
As if that wasn't digressive enough, he then starts another digression, explaining that people think England produces odd characters because the climate is variable.
England's people might be odd, but they're also great. After all, it's in England that "learning" is going to reach perfection ("acme," in Greek letters).
When that happens, all writing will stop. There won't be any point in writing anymore—or everyone will have to start all over again. Tristram wishes he'd been born then, 20 to 25 years from now.
Finally we return to Toby, who's been "left knocking the ashes out of his tobacco pipe." There's been lots of talk about Toby—so what's this guy like?
Tristram talks about "humour," as in "temperament" or personality. In this case, Toby derives his humour from blood—he's red-cheeked and good-natured.
At the same time that he's describing Toby, Tristram is trying to tell us about some problem that happened to his uncle and his father (his great-aunt Dinah married a coachman), but he's having trouble spitting the story out.
Toby is a modest guy. He's almost as modest as a woman, if that's possible. But Toby didn't become modest through associating with women, because frankly, he's terrified of women. His modesty comes from a war wound. At the siege of Namur, a stone fell on his groin.
Don't hold your breath to find out what happened, since Tristram says that he's not planning on narrating that incident until later.
The reason that Dinah's marriage was a problem for Toby and Mr. Shandy is because Mr. Shandy liked to bring it up in company to illustrate how cursed the Shandy family was, while Toby's modesty (which sounds a lot like pride) wanted to keep it hushed up.
The chapter ends with Tristram talking about foolish types of argument, reducing the whole thing to the absurd.