Sissy is not a model student in Gradgrind's school. She is emotional, highly moral, deeply committed to her father's memory, and doesn't have a very good head for figures – all qualities that make her pretty unfit for the just-the-facts approach the school teaches.
Sissy complains about her stupidity to Louisa, who answers that Sissy's good nature and ability to be a pleasant, helpful, loving person is better than being a super knowledge robot.
Sissy continues to complain, but as she describes the "mistakes" she makes, we can see that they are not mistakes at all. Rather, she is working from the point of view of Judeo-Christian values of compassion and care, while the economically minded school is working from the point of view of every-man-for-himself, dog-eat-dog world.
Changing the subject, Louisa asks Sissy to tell her about her father and mother. Sissy's mother died in childbirth. Her father had loved her very much and wanted to have Sissy become educated because that had been her wish.
Sissy describes how exhausting her father's profession was, especially as he got older and was less able to do the complicated acrobatics that makes for good clowning. When he was very unhappy, Sissy used to cheer him up by reading him "the wrong books – I am never to speak of them here" – fairy tales, myths, and novels. (Hey, you know what's funny? We're reading a novel as we speak! What do you think that means?)
Sissy finishes with a sort of horrifying story about her dad. He was so upset with his bad performance one day that he beat his uber-faithful dog, Merrylegs, until it was bloody. So, you know, emotions can sometimes be a little scary.
Tom comes in to fetch Louisa to come make nice with Bounderby, who has come for a visit.
Sissy completes her story. The last time she saw her father, he was really as depressed as she'd ever seen him. He asked her to go out and buy some massage ointment for his sore back, and when she came back he was gone.