F1Krazy's answer is correct, but does not perhaps do enough to provide the full context of the quote. For that, let me quote the whole paragraph, and the one following it, from pages 62–64 of Woman and the New Race (thanks to shoover for the link!).
For further context, let me note that the title of the chapter from which the quote is taken is "The Wickedness of Creating Large Families" and that, immediately before the paragraph from which the quote is taken, Sanger has written about the extremely high infant mortality rate in large families, quoting results from a study published in 1913 showing that e.g. 60% of all 12th-born children in the study died before reaching the age of one year, and noted that even many of those who survived their first year would surely die in the later years of their childhood. Then follows these paragraphs (emphasis mine):
"Many, perhaps, will think it idle to go farther in demonstrating the immorality of large families, but since there is still an abundance of proof at hand, it may be offered for the sake of those who find difficulty in adjusting old-fashioned ideas to the facts. The most merciful thing that the large family does to one of its infant members is to kill it. The same factors which create the terrible infant mortality rate, and which swell the death rate of children between the ages of one and five, operate even more extensively to lower the health rate of the surviving members. Moreover, the overcrowded homes of large families reared in poverty further contribute to this condition. Lack of medical attention is still another factor, so that the child who must struggle for health in competition with other members of a closely packed family has still great difficulties to meet after its poor constitution and malnutrition have been accounted for.
The probability of a child handicapped by a weak constitution, an overcrowded home, inadequate food and care, and possibly a deficient mental equipment, winding up in prison or an almshouse, is too evident for comment. Every jail, hospital for the insane, reformatory and institution for the feebleminded cries out against the evils of too prolific breeding among wage-workers. "
In other words, Sanger is definitely not advocating for infanticide here. What she's arguing is that not only is a high rate of infant death a natural consequence of having excessively large families among the poor (due to poverty and crowded conditions leading to malnutrition and a high rate of infectious disease — a fact that would surely have been even more true 100 years ago than it is today) but that even those children of large poor families who don't die young will often suffer so much from their bad childhood that arguably (and perhaps somewhat hyperbolically) having died young might have been a more merciful outcome than growing up poor, sick and malnourished because one's parents had more children than they could adequately house, feed and provide for.