Dune wrote:"But your nephew Rabban does not appear to be pressing strongly enough toward a solution of the Fremen problem."
"What does the Emperor wish?" the Baron asked. "There cannot be more than a handful of Fremen left on Arrakis. The southern desert is uninhabitable. The northern desert is swept regularly by our patrols."
"Who says the southern desert is uninhabitable?"
"Your own planetologist said it, my dear Count."
And again in his later conversation with Hawat:
Dune wrote:"Ten million?" The Baron's jowls quivered with amazement.
The Baron pursed his fat lips. The beady eyes stared without wavering at Hawat. Is this true Mentat computation? he wondered. How could this be and no one suspect?
We ask ourselves how the Baron could be so dense, how he could fail to realize facts seemingly so simple that the Duke Leto suspected them before even arriving on Arrakis. We ask how the Baron could repeatedly dismiss the issue of the Fremen, even to the point of wilfully ignoring Rabban's reports of how many men he was losing to the Fremen each year. Hawat thought the Baron a clod, but was he a fool as well?
Here's my suggestion: The Baron feared the Emperor's truthsayer to such an extent that he had to absolutely make sure he never knew anything that would incriminate him should he have to face Mohiam. We know he avoided knowing the truth of certain details first-hand, such as the killing of Kynes and the execution order for Paul and Jessica, as well as the intended torture/killing of Duke Leto. This much was obvious for the Baron to have: plausible deniability before the truthsayer. He mentions repeatedly how he must always be able to answer the truthsayer should it come to that.
But I think the Baron's problem went further than merely having to prevent himself knowing about outright crimes - I think he had to avoid knowing certain kinds of things altogether for fear that he'd be questioned about them. What if, for instance, the Baron had taken the pains to find out about the real Fremen numbers, to learn what they were really capable of? Maybe he had a glimmer of this in the back of his mind and refused to allow himself to even think about it. If the Baron was questioned by the Emperor in front of Mohiam about why the Fremen were costing the Harkonnens so much in lives, equipment and spice production, the Baron would have to answer truthfully about it. If the Baron knew the Fremen were numerous, dangerous, and a real threat, what would he say to the Emperor? That he just couldn't deal with them? We more or less know that if the Baron committed his entire combined forces against the Fremen he would have failed, to say nothing of whatever forces he allotted to Rabban to use. Additionally, the cost of shipping those troops would be astronomical. The Baron would therefore have had to admit that he was incapable of controlling the local population and of ensuring spice production, and so we expect the Emperor would have then taken Arrakis away from him. This would have been a predictable result of the Baron knowing the truth about the Fremen and having to make a report before the Emperor. The Baron's only recourse, then, was to deliberately withhold certain information from himself such as that in order to avoid having to admit at any point that he had failed to follow up on what he knew.
Imagine how hard it would have been to work under these conditions, and for Piter to have had to calculate using deliberately incomplete information, all for fear of the Emperor's truthsayer. But this was no delusion on their part - they really did have this to fear from the existence of truthsayers! Imagine that you literally cannot lie, how many steps you'd have to take in order to get around that or to make sure you know nothing you mustn't know. It really is a nightmare, almost as bad as having a telepath around. Under these conditions perhaps we can excuse some of the Baron's apparent foolishness and ignorance.
There are other things about him that there is no need to excuse, but on this point I'd say that the Baron was working under a considerable handicap.