Title text: So he's saying that God thought Hitler's art was so bad that the Holocaust was an acceptable alternative. It's no secret that the hat guy is closely based on Aram, from Men in Hats.
Cueball speaks to an early version of Black Hat (with more of a top hat than his later "boater" hat style) about the holocaust and Adolf Hitler. Hitler was the leader of Nazi Germany during World War II, during which the Germans (under Hitler's leadership) rounded up and killed millions of people; most prominently Jews. This has come to be known as the holocaust.
Black Hat's comment that Hitler wanted to be painter, but did not get into art school is historically accurate. He applied at the Academy of Fine Arts Vienna twice. In any event, Cueball implies in the second frame that had Hitler been accepted into art school, the course of history might have changed and the holocaust might never have occurred. Black Hat suggests that perhaps God intentionally prevented Hitler from become an artist because God is an "art lover" and Hitler's art was terrible.
As with other early comics, the title text explains for us: this implies that God would have preferred the holocaust to have occurred rather than allow Hitler to make some bad paintings. Such a comment that God could be so callus would surely be offensive to many people. Cueball's reaction to this shocking statement is relatively mild and suggests that Black Hat has made such controversial statements before. He will make a similarly controversial and Nazi-related statement again in xkcd 984.
The title text informs the reader that Black Hat is based on a character named Aram from a now-defunct comic strip entitled Men in Hats - http://www.meninhats.com/. Like Black Hat, Aram seems to have frequently made judgmental, insulting or controversial comments in a very emotionless manner. Aram wore a grey (perhaps intended to be black) suit with a red bowtie and a black top hat with white strip above the brim. Black Hat's hat clearly evolved from the top hat design later in xkcd.
Learning about the Holocaust has really shaken my belief in God.
You know, as a young man, Hitler was rejected from art school.
Yeah... shame he didn't get in
Well, have you seen any of his paintings? They're awful. Defy all rules of composition.
What are you suggesting?
Maybe there is a god, but he's a real art lover.
This is why I don't go out in public with you.
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