Why is this the answer?

The answer is pun because this riddle is a clever word game that describes a funny type of joke. Let us look at the first clue, "Three little letters." The word "pun" only has three letters: P, U, and N. That part is simple and correct! A pun is a joke that plays with words. It uses words that either sound the same but mean different things, or one word that has two meanings. The whole point is to trick your ears and make you smile at the silly wordplay. Next, the riddle says this joke is a "paradox," and that "The worse that it is, the better it becomes." A paradox is just a surprising idea where two things seem opposite, but both are actually true. Think about the groans you hear when someone tells a really silly pun. For example, "What did the grape say when it was squeezed? Nothing, it just let out a little WINE." That pun is so cheesy and silly that it makes people groan, but the groan is a big part of the fun! When a pun is so silly it makes everyone shake their heads and say, "That was terrible," that is exactly what makes it "better." A "worse" pun is a success because it gets a huge, funny reaction. The joke is not supposed to be super serious or clever in the usual way. It is supposed to be corny and make you laugh or groan out loud. The sillier and more ridiculous the pun, the more memorable it is. So the pun that seems "worse" because it is so corny actually becomes "better" at its job of being funny. That is the genius of this riddle: it perfectly describes how the silliest jokes can be the most fun.