It seems as if the short one is probably the grandson of the tall one because a grandfather can most likely still be considered a father (hence the name—grandfather). However, like the riddle mentions, the short one won’t be considered the son, per se.
As for when the phrase “you is” would ever be correct, the answer is never. In order for there not to be a subject-verb agreement error, the pronoun “you” always needs a plural verb (such as “are”). And because “is” is a singular verb, to say “you is” is a subject-verb agreement error.