Varro argues that there are three kinds of theology: Mythical, Physical, and Civil.
"Mythical" theology involves the stories of the poets about the gods and the fantastic events of the past. Homer and Hesiod would certainly have been in mind, Augustine may have even thought of Ovid and later compilers.
"Physical" theology is the realm of the philosophers and is a quest to explore the nature of existence, the truth about deity and mankind, the nature and role of reason, and so on.
Augustine suggests that in these first two types of theology, Varro has confined the first (Mythical) to the superstitious masses, and the second (Physical) to the thoughtful-but-isolated elites. We might think of modern philosophers, theologians, and scientists who believe that they have higher and deeper truths, while the common man clings to his Bible and guns. (An image not completely rejected by the common man himself.)
Yet, there is a third type of theology called "Civil." Varro suggests that this is the theology of the sate--the rites followed by priests and the sacrifices made by the community. Augustine suggests that this is really in the same category as the first type, since both are found within the city itself. They are both, in a sense, the superstitions of the people--that one is acted out on stage and the other acted out in the public forum makes little difference to the question of whether or not they are true (the subject of the next chapter).
Augustine points out that Varro knew that the Mythical/Civil religion was false, and yet pursued it anyway. In a sense, Varro's honesty only condemned him all the more, since he knew very well that neither provided truth or eternal life:
So then, neither by the fabulous nor by the civil theology does any one obtain eternal life. For the one sows base things concerning the gods by feigning them, the other reaps by cherishing them; the one scatters lies, the other gathers them together; the one pursues divine things with false crimes, the other incorporates among divine things the plays which are made up of these crimes; the one sounds abroad in human songs impious fictions concerning the gods, the other consecrates these for the festivities of the gods themselves; the one sings the misdeeds and crimes of the gods, the other loves them; the one gives forth or feigns, the other either attests the true or delights in the false. Both are base; both are damnable. But the one which is theatrical teaches public abomination, and that one which is of the city adorns itself with that abomination. Shall eternal life be hoped for from these, by which this short and temporal life is polluted? Does the society of wicked men pollute our life if they insinuate themselves into our affections, and win our assent? and does not the society of demons pollute the life, who are worshipped with their own crimes?—if with true crimes, how wicked the demons! if with false, how wicked the worship!What we see in the superstitions of the mass of mankind is not the truth (vox populi is certainly not vox dei) but rather a reflection of mankind itself. Whether we look at popular entertainment or the practices of civic life, we see nothing more than a base reflection of the "society of wicked men" which attempts to "pollute our life" by appealing to our affections and trying to "win our assent."
(And despite Varro's best efforts, 'Civil' theology is not exempt by being closer to the 'Natural' theology he wishes to follow--Civil and Mythical are connected to each other, and equally false.)