In real life, Walter Mitty isn't anything special. He gets bossed around by his wife a lot. He can't do simple mechanical things. He's forgetful. He's not a great driver, and people always seem to be either yelling or laughing at him for one blunder or another. To compensate for his failings in the real world, Mitty creates an entire "secret life" for himself: a series of fantasies in which he is a powerful, decisive man admired by those around him – everything he is not in reality.
Author James Thurber does a beautiful job of closely interweaving Mitty's fantasies with his real life. It's not simply a matter of jumping back and forth from reality to imagination; each fantasy is spurred by some specific sound or word or event in the real world. The "pocketa-pocketa" sound that Mitty hears in several fantasies is likely the sound of his running car driving along the road. When Mitty passes a hospital, this sparks his surgeon fantasy. When a newsboy shouts about the Waterbury Trial, Walter imagines himself in a courtroom. He is wearing a sling in this fantasy, just as he thinks of wearing a sling the next time he goes to a garage. The shout "You miserable cur!" is what reminds Mitty of the puppy biscuits he forgot (10). The Liberty magazine with pictures of air bombers sends him into a fantasy military dugout.
These physical or tangible connections between fantasy and dream remind us to look for deeper, emotional connections between them. In Mitty's first fantasy, for example, he is piloting a "naval hydroplane" through a storm while those around him look on in awe and admiration. This is interrupted by Mrs. Mitty's plea for him to slow down. Here Mitty fantasizes about the control that he's missing in his marriage. Mitty is inept at mechanical tasks, so he dreams of being a surgeon – a dexterous genius. As he sits passively waiting for his wife in the hotel lobby, he dreams he is a man of action taking matters into his own hands.
Now, there are two different ways you can look at Walter Mitty and these fantasies, and it depends on how you choose to interpret the entire story. The first, and probably more straightforward approach, is to see Mitty as a loveable guy who quite harmlessly uses fantasy to get through what seems to be a pretty boring day of errands with his wife. You could argue that Thurber, through his use of free indirect style (see "Narrator Point of View"), wants his readers to take Mitty's side. You could argue that this story is a testament to the human ability to enjoy and make good of even the dullest, most banal of events.
The other way of seeing Walter Mitty (and, consequently, the story of "Walter Mitty" as a whole) involves identifying some darker themes in Thurber's work. This interpretation is probably sparked by the fact that Mitty's final fantasy is of a firing squad, which is a bit ominous. Is Mitty just endlessly persecuted by his more logically-minded foes in the real world? Are his fantasies defeated by reality? Or does he remain, as Thurber writes, Walter Mitty the Undefeated?