In response to a question on Catholic Answers Live last evening, I promised to post a more thorough answer to a question asked.
Most commentators willingly admit that this verse is difficult to interpret. To say that John is the greatest and then seemingly contradict that statement by saying he is the least in hard to reconcile.
But it seems what Jesus meant is the make a distinction between the Old and New Covenants. John is the last and greatest of the Old Prophets, the fulfillment of Malachi’s prophecy (Mal 6:5). He is still under the Old Covenant, without the grace of the Church and the sacraments. As St. Jerome wrote, “We understand it simply, that every saint who is already with the Lord is greater than he who yet stands in the battle; for it is one thing to have gained the crown of victory, another to be yet fighting in the field.” (Thomas Aquinas, Catena Aurea: Commentary on the Four Gospels, Collected out of the Works of the Fathers: St. Matthew, ed. John Henry Newman, vol. 1 (Oxford: John Henry Parker, 1841), 413.)
One Catholic commentary suggests, “This seems to describe John as one who straddles the threshold of the Old and the New. Insofar as John has one foot in the time of preparation, he is less than the saints of messianic times.” (Curtis Mitch and Edward Sri, The Gospel of Matthew, Catholic Commentary on Sacred Scripture (Grand Rapids, MI: Baker Academic, 2010), 154.)
So it seems Jesus is making a comparison between the life of the Old Covenant without the indwelling Holy Spirit and about how rich and blessed it is to enter the Church and have all the graces and new life of the New Covenant following the death and resurrection of Christ.