what does "on the crumbling edge of a shit hole"mean?
People sat at tables, in booths, on leather love seats or on the iron stools lining the long paneled bar. Others took to a postage-stamp dance floor, just a scattering of them yet, to boogie and shake to the five-piece band currently doing a very decent job covering the Black Keys’ “Lonely Boy.”
Instead of the campy pirate costumes, the staff wore black skirts or pants and white shirts.
It threw him off. And though the former Katydids had been on the crumbling edge of a shit hole, he kind of missed it.
Didn’t matter, he reminded himself. He’d get a beer like any normal guy might on a Friday night. Then he’d go home.
He started toward the bar when he spotted Abra.

Question

what does "on the crumbling edge of a shit hole"mean?
People sat at tables, in booths, on leather love seats or on the iron stools lining the long paneled bar. Others took to a postage-stamp dance floor, just a scattering of them yet, to boogie and shake to the five-piece band currently doing a very decent job covering the Black Keys’ “Lonely Boy.” 
Instead of the campy pirate costumes, the staff wore black skirts or pants and white shirts. 
It threw him off. And though the former Katydids had been on the crumbling edge of a shit hole, he kind of missed it. 
Didn’t matter, he reminded himself. He’d get a beer like any normal guy might on a Friday night. Then he’d go home. 
He started toward the bar when he spotted Abra.

Answer

It's very colloquial (like most of the excerpts you've pulled from this book/story!).  It means that although the old bar was a mess -- maybe dirty, small, cramped, dark, a "dive" bar -- he still misses it.