Ernie talks about shapes.
As is often the case, it's really Bert's reactions that make this sketch. Notice how much expression Frank Oz gets out of that puppet even though the eyebrow doesn't move; as Bert himself might say, it's terrific.
Again, this motif of Ernie asking a question or doing something that prevents Bert from going to sleep is a common one. Later sketches take it up to eleven in a way that I won't spoil.
You know, it's been a long time since I took a geometry class: is there a mathematically correct answer to the question "how many sides does a circle have?" I would say, in my limited English major assessment, that a circle either has an infinite number of sides, or no sides at all.