Lao Tzu said that "A good person is the bad person’s teacher. A bad person is the good person’s task.". Source
I don't understand anything!
Can you explain it in plain English?
It looks like this is from Daodeijing chapter 27. Given that, I want to preface my answer by saying that I do not know of anyone who works in Chinese philosophy that believes in the historicity of Laozi (Lao Tzu). Instead, we believe this document to be a multiply re-organized text that includes many Taoist notions. (See for instance Franklin Perkins, Heaven and Earth are not Humane, 82).
Given that, the literal text is on ctext.org but it won't let me quote it here. A key point in Taoist texts is that we should not identify shàn with goodness in the common sense. That might be more plausible for the Confucian texts, but for Taoists it's not clear that they think standard morality has anything to teach us.
The portion we want comes after the 故 (therefore), but it's also useful to look at the part before that. In this context, the ctext translation which renders it as "skilful" is probably better. This ties in the with Zhuangzi's notion of skilfullness which may or may not mean "good" in the moral sense.
Instead, it means the one who has wu-wei connection with the Tao.
Thus, a better translation is
The skilful one is the unskilful one's teacher; the unskilful one is the skilful one's resource.
Again, tying this to the Zhuangzi with ideas like Cook Ding, the notion is that the one who is in touch with the Tao should lead, and being in touch with the Tao gives thoughtless skill or spontaneity to one's abilities (ziran).
The good person teaches the bad person to make them better. The task of the good person is to help the bad person.
One reasonable answer is that "good" should be used in a certain way:
1) A good person is a person that is not only good in intentions and values, but also develops powerful ("good") instruments to make the good happen, because she thinks about ways to do so all the time.
2) A bad person cannot create these instruments by herself, because all that counts for her are the bad ends, limiting her mind. Therefore, the good person is a teacher, providing powerful instruments to realize the ends. Second point may be that bad persons do not like to share their knowledge.
3) Therefore providing bad people from learning the instruments and keeping them secret and/or learning knowledge of human nature to recognize the bad in people is a task for good persons.
So "good" does not rest on the means, but on the ends. It is formulated in philosophy by Kant in the Groundworks for Metaphysics of Morals, first Part, for example. It fits to common narratives provided by chinese motion pictures (that rest on chinese legends). Recent examples of it are the Harry Potter and Star Wars storylines.
But I like the more simple (and at least equally reasonable) answer of @JohnAm, too