One day, in the ship's mess hall, Billy spilled a bowl of soup onto the floor. Claggart was walking by and was going to let someone else handle the issue, but saw that Billy had spilled it and stopped. He looked upset, but then gathered himself and said, sarcastically, "Handsomely done, my lad! And handsome is as handsome did it too!" Everyone laughed, but Billy didn't grasp Claggart's sarcasm and took this as proof that Claggart actually liked him.
Claggart's remark plays on the supposedly close relationship between physical appearance and behavior. Billy is too naïve to grasp Claggart's sarcasm.