Lye poisoning was an all too common occurrence among the poor in rural Mississippi, so it represents a historical reality of life at the time, while also working as a symbol for other issues that plagued this population.
Lye poisoning strips people of their voices (we cover the significance of this issue in the "Point of View" section), and it can cause starvation and dehydration because it makes swallowing extremely painful and difficult.
Starvation and dehydration literally stem from a lack of food and water, but in literature, physical starvation and dehydration often stand in for other types of lack. Phoenix and her grandson lack all kinds of things—adequate medical care, education, transportation, financial resources, to name a few. Basically, the system is starving them of a dignified quality of life, and the grandson's lye poisoning reminds us of this.