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To me that means Paterno didn't really know what happened.

A deposition of Joe Paterno was read in court on December 16, 2011. According to Paterno, he was told that Sandusky and a boy were in the shower. He knew Sandusky (58) and the boy were boy naked.

Jo Paterno said under oath "(McQueary) had seen a person, an older person, fondling a young boy. I don't know what you would call it, but it was of a sexual nature."

According to McQueary: ""I told Paterno I saw Jerry with a young boy in the showers. It was way over the lines, extremely sexual in nature."

Paterno may not have "really known what happened," if by that you mean, Paterno didn't know it was anal rape.

But Paterno knew it was a naked older man with a naked boy, doing something of a sexual nature ('extremely sexual' according to McQueary). When Paterno said "I don't know what you call it," Paterno is talking about the it activities that McQueary described to him - the 'extremely sexual' activities.

Based on that, do you still think Joe Paterno is off the hook?

The choice at that point was call the cops or report it up the chain. The choice Paterno made is poor in hindsight, probably motivated by protecting the school and not the child. The problem he is really not the right person to call the cops based on that second hand description, that was McQueary. But by that logic, Paterno's bumping it up the chain is equally useless since he knew less than McQueary.

Paterno is basically off the hook because he has McQueary saying sexual and fondling, but not other evidence (AFAIK). At that point he has to ask himself if the potential crime is serious enough to call the cops right away and it's at that point that Paterno makes the mistake of thinking it was not.