That line is generally understood as follows: if a general is in a desperate situation, and needs to motivate his troops, providing them with too many rewards can be a means with which to temporarily spur them onward. However, since the situation is desperate, this over-rewarding can be understood as a sort of last resort, or a last attempt to achieve victory, as the general will have very little resources left over after giving so much to the troops. Likewise, if a general is punishing his troops too frequently, it suggests that the general is once again in a desperate situation, attempting to get his soldiers in line. Again, this strategy would be a last-resort, since too much punishment will eventually lead to discontent and further problems among the ranks.

So, giving out too many rewards and too many punishments can both be understood to be last-resort measures that a general might take to motivate his army, and if the enemy general has resorted to one of these two methods of spurring on his army, it is clear that they are in “acute distress.”