As long as two of the three dimensions of the block are less than 4 cm, the block will be able to pass through the square. Using Statement 1, it's certainly possible that two of the dimensions are less than 4 cm - it could measure 2x2x4, say. But it's also possible that only one of the dimensions is less than 4 cm. Maybe the height is 1/1,000,000 cm, and the other two dimensions are both 4000 cm, which would look like an enormous square sheet of paper. Without bending the sheet, you couldn't pass that sheet through a small square hole no matter how you rotate it.
Statement 2 is clearly insufficient alone, but using both Statements, if it were true that two of the block's dimensions were greater than 4, then since the third dimension must be greater than 1, then the volume would automatically be greater than 16 cm^3. So it's impossible for two (or all three) of the dimensions to exceed 4 cm. So at most one dimension exceeds 4 cm, and we know if only one dimension is greater than 4 cm, the block can fit through the square. So the answer is C.