The story comes from Shiobhan Roberts’ book about Conway. It was claimed that at the Belgrado 1977 International Mathematics Olympiad the English were teased by the Dutch to solve this problem. Fun part is of course that there’s not math involved at all.
The pyramid can be read as follows. The second line describes what is written on the first line, and for every following line it goes like that.
So line two read that on line one there’s “one one”.
Then on line three it reads that on line two there’s “two one’s”.
Line four: on line three there’s “one two, one one”, and so on.