The Don is saying that if an enemy thinks you are less capable than you are, by thinking your faults are larger than they actually are, it is a great advantage. He also says that if a friend thinks you less able or less good than you are, this is also an advantage. He uses a parallel construction to express these two thoughts. The parallel construction contrasts "enemy" with "friend", "faults" with "virtues", and "overestimate" with "underestimate".
In fact he is saying that having both friends and enemies think less of you then is accurate, although in different ways, is a good thing. Exactly which faults and which virtues the Don refers to is not stated, so it suggests all possible faults and virtues in general.
That the sentence starts with "He claimed" indicates that the narrator does not endorse this idea, and perhaps implies that it is not true.
