Explain the paradox of the Witches' "lesser than Macbeth and greater." How is this paradox true?

This is just one of a number of paradoxes used by the Weird Sisters in their prophecies. Here they are prophesying that, although Banquo will never be king himself, his offspring will be. And because Banquo will never sit on the throne, he will be happier than Macbeth. In that sense, he will be "greater" than his friend.
The prophecy tells us a number of things. For one thing, it indicates just how little happiness Macbeth's usurpation of Duncan's throne will bring him. At no point in the play is Macbeth ever completely comfortable in his new role as king; it becomes a burden rather than a blessing. The prophecy that it will be Banquo's progeny, and not Macbeth's, that will rule Scotland is telling indeed. We sense that this won't end well for Macbeth.
The Weird Sisters' prophecy also alerts us to the serious danger that Banquo's son, Fleance, now finds himself in. Macbeth soon becomes obsessed with the witches' prophecies and what they mean to his power. As Banquo's descendants have been prophesied to rule Scotland, then Fleance is a threat to that power. Once Macbeth has heard the prophecy, then it can only be a matter of time before he tries to settle accounts with Banquo and his family.

The Weird Sisters tell Banquo that he will be "Lesser than Macbeth and greater" because he will never be king himself, as Macbeth will, and in this way Banquo is lesser; on the other hand, Banquo will father a line of kings, while Macbeth's line will end with himself, and, in this way, Banquo will be greater. They tell him,

Thou shalt get kings, though thou be none. (1.3.70)

In other words, Banquo's blood will live on, his descendants taking the throne of Scotland and ruling, apparently, for some time. Macbeth, however, will be the last of his direct line to rule because he has no children; thus, his family's reign will end with him. Despite the fact that Macbeth tries to eliminate Banquo's family, Banquo's son, Fleance, lives. Further, the ruling king of England and Scotland when Macbeth was first written and performed, James I of England (VI of Scotland) could apparently trace his own lineage back to the real-life Banquo of the eleventh century. So, the Weird Sisters were right!