Does the prophetic hadith: "Seven will Allah shade in His shade on the Day when there is no shade but His: a just ruler, and a youth who grew up in the worship of Allah" mean that the youth mentioned never makes mistakes, or that he may sin and then return to Allah?

All of humanity makes mistakes, and the best of them are those who repent. If you did not sin, Allah would do away with you and bring forth people who would sin, then seek forgiveness, and He would forgive them. The youths whom Allah honored and shaded on the Day of Resurrection are those who were steadfast in obeying Him, and if they fell into sins, they repented and sought forgiveness.