It was a test. Of course, Han Solo knew the difference between time and distance. He was a smuggler, after all, and a very good starship pilot. What he didn’t know was just how stupid and gullible the wannabe passengers were, and he wanted to know, so he said something quite obviously idiotic: twelve parsecs.
The kid didn’t even blink, clearly right off the farm, like he suspected. The kid was oblivious to the fact that he had used a measurement of distance as if it were time.
The old man smirked. Okay, the old man got it. The business with the laser sword wasn’t luck. The old man knew what he had just said, but didn’t comment on it.
This told Han Solo enough. The kid was an idiot, but the old man was smart. However, the old man wasn’t haggling or pointing out idiocies, which meant they were desperate enough for him to drop another whopper.
Han quoted a price that was very nearly the cost of a new ship, which the kid noticed, so not quite an idiot but still not bright.
Rather than haggle, the old man raised like Amy from that episode of Futurama where her parents bought her a new car.
Han Solo was desperate enough himself to stop testing and asking questions.
So yes, twelve parsecs was a stupid thing to say when trying to explain how fast the ship was. Doesn’t matter what some ridiculous retconning movie would claim later.
Han Solo was testing how much he could swindle out of the fare. He was an underhanded smuggler and scoundrel, after all, and he needed the money.