The exchange seems to be designed to show that while Picard may have a superficial grasp of Mid-20th Century American terminology (mostly from his reading of pulp magazine detective stories), his genuine understanding is actually quite poor, as the earlier part of the exchange shows;
PICARD: And when I looked down into the street, I actually saw
DATA: An ancient Earth device used primarily for transportation.
As well as using marginally inappropriate language, he fails to recognise a reference to baseball (by then a dead sport) and also misunderstands fairly common expressions;
VENDOR: Hey Dix. How's tricks?
PICARD: Oh, she's fine, fine.
Ultimately he decides to bring an expert along (Professor Whalen) to help him enjoy the program more fully.
The fact that he doesn't know the specific term for a "city block" isn't that uncommon. It's a peculiarly American term and one that only arose in the 1800s. It's quite reasonable to assume by the year c2400AD the expression would have become obsolete, especially given that the Earth of the future is a paradise with little overcrowding.
FYI, In the original script, the line was slightly different;
PICARD : I saw an entire city block from that window.
BEVERLY : It sounds wonderful.