1.

Mill is saying here that the "higher" a being, the more satisfying their
life. A human is higher than a pig, Socrates is higher than a fool. In both
cases, he says, it's better to be the higher being. The last sentence
means that lower people might think they have it better, but that is only
because they are not actually able to compare the two states whereas
the higher person can compare them and knows he/she has it better.

This comes from a chapter in which Mill is explaining why it is better to

have choices and to be more thoughtful than it is to have fewer choices
and go through life without thinking.

2. Looking at the inverse of the statement may be instructive here.

Maybe the wiser creature would be more intensely dissatisfied when
dissatisfied, knowing as it does the benefits of satisfaction, compared to
the creature with less wisdom and less awareness of a state that does
not currently characterize it.

Maybe the statement really comes down to the idea that wisdom allows
one to dwell in multiple states hypothetically and a lack of wisdom
restricts or fails this possibility.