In elementary school, children are given projects to do: color this picture, fill out this worksheet, draw a poster of a flower and label all the parts. These projects are part of teaching the curriculum.
The projects can be grouped together into a unit, which focuses on a specific idea or subject: Subject vs. Object, the Biology of a Flower, Long Division, State Capitals.
So "a Project evolved into a Unit" is describing lots of smaller activities which reinforced each other to build into an overarching unit teaching a concept.
Construction paper and wax crayons are commonly used by young kids to color and draw.
The extended metaphor here is saying that the speaker went to school in Alabama and spent lots of time drawing and coloring on construction paper, doing projects, in an effort to learn the subject "Group Dynamics," which was the larger concept being taught.
Out of context I don't know if that's meant to be an ironic eyebrow arched at "learning how to get along with other kids" or if it's something more specific.