The word differentiate can mean to recognize what makes someone or something different. As peole age, sometimes their vision gets worse, or their mental faculties decline which hinder them from being able to properly differentiate things. In mathematics, to differentiate is to transform a function into its derivative. The joke is centered around the word "differentiate" and ties in nicely with the old math professor described. 
Old math profs never die , they just can ' t differentiate .