"can" can be a synonym for "might" / "may"

(purists would argue that it can't, but common usage trumps purism)

Also, I will point out that, even from the perspective of formal logic, the original statement has "city or county". In other words there is no single fixed C - C could be a city or a country. Since counties can be larger than cities, it stands to reason that a school district could be larger than the size of a city while being equal to the size of a county. And can be smaller than the size of a county while being equal to the size of a city.

So, even assuming that the original statement is taken to have the logical meaning you've interpreted, that meaning does not technically forbid school districts from being equal to the size of a county (as long as that county is larger than some city, so that we can still make the true statement "this district is larger than a city"), nor from being equal to the size of a city (as long as that city is smaller than some county, so that we can still make the true statement "this district is smaller than a county").