He draws a parallel between living in the dark as the living under the old covenant administration, and living in the light as embracing the new. Usually the assumption is made that walking in the darkness means that you are some way not saved, and you are far away from God. For those in the old covenant that may well be the case, but it is certainly not true for all people. There were those that walked in the dark who still knew God, but that needed now to step out into the light. This is the problem John is addressing here.
"But how are the Jews 'darkness'. The reminders of creation help us see what John means. Light and darkness are used in John 1 in the same way as they are used in Genesis 1. In Genesis 1 darkness is not evil. God separates light and darkness and still says both are good. Darkness is a part of creation; it is what comes before dawn. Since darkness comes before light, it is like the Old Testament period. It is good in itself, but the old covenant darkness is always intended to be temporary. It is supposed to last only until the light comes, until day begins. The sin of the Jews is not living in the darkness. Before the light comes, that is only thing they can do. Their sin is to cling to the darkness when the light has come. The sin is for darkness to seek to overpower the Light, instead of giving way to the Light. The sin is to love shadows rather than the reality."