What do "former" and "latter" refer to, here?

"The former" refers to "his limitations", "the latter" to "his gifts". The writer is saying that a poet's good qualities, well applied, may enable him to produce delightful work in spite of his limitations.

To answer your second question first, one method for tackling difficult sentences is to deconstruct and, if necessary, then reconstruct them in shorter, bite-sized sentences so that the meaning can be teased out.

The text you've provided is challenging even for a native English speaker. Part of the difficulty lies with former and latter, expressions that are used when the writer wants to refer to two previously mentioned things, without having to repeat them. The former thing is the one first mentioned, while the latter is the one mentioned second.

In your example, it's not immediately apparent what the "first" and "second" things are, but reading it carefully, the only clear candidates are "limitations" and "gifts", respectively.

The next step is to replace the problematic words with the words they refer to, remove the conjunctions and restructure the long sentence into shorter sentences:

Gautier was indeed a poet and a strongly representative one. [He was] a French poet in his limitations even more than in his gifts. Even when [a poet's limitations] are surprisingly great, a happy application of the [poet's gifts] may produce the most delightful works. [Gautier] remains an interesting example of [this].

To paraphrase: Gautier is an example of how a poet can overcome their limitations and write delightful poetry by applying their talents.

To be honest, I'm struggling to understand what the writer means by "a French poet in his limitations even more than in his gifts". The best I can make of this is that Gautier's limitations made him even more of a French poet than his talents did. A somewhat absurd statement, in my view.

"a French poet in his limitations even more than in his gifts" isn't grammatically coherent. this sentence was either cut off or translated poorly; it doesn't actually have any meaning as it's worded. as a native english speaker, any meaning is inferred by readers, not declared by the author.