This chapter isn't in chronological order since it begins with Shadrack's return from World War I, goes back to his time in Europe during the war, and then returns to the Bottom once he's back from France.
In 1919, Shadrack has returned to the Bottom "blasted and permanently astonished by the events of 1917" (1919.1). In other words, he suffers from shell shock, or what we would now call post-traumatic stress disorder (PTSD) because of the disturbing things he saw in combat.
We travel back to 1917 France, to Shadrack's first battle. As he's running with the other men in his unit, dodging bullets and other artillery, he sees the man next to him get killed. (The description is pretty gruesome; Shadrack sees the man's "head disappear [...] under the inverted soup bowl of his helmet" (1919.1).)
The next thing Shadrack knows, he is in a hospital bed. He's afraid his hands have been blown off, but when he looks down he sees that both are there.
When he tries to lift a cup, he thinks he sees his hands growing "like Jack's beanstalk all over the tray and bed" (1919.2) and he freaks out. (Who wouldn't?)
The chapter skips forward to Shadrack's release from the hospital. He's still suffering from PTSD, but the hospital is running out of space and they don't consider Shadrack's condition serious enough to keep him there.
We can tell that Shadrack is still dealing with mental issues when he is released. He's afraid to walk and has to "plot […] his course" (1919.13) in order to avoid concrete and certain bushes. (Sounds like he's trying to avoid the land mines he likely encountered in the war, right?)
He sees some people who look "like paper dolls" (1919.13) and envisions them being carried away by the wind.
He finally makes the move to walk away from the hospital, and after getting a little turned around, he just starts walking. He's very weak from being in a hospital bed, so he has a hard time walking and looks like a "drunken man" (1919.15). When he gets to a town, he sits down on a curb because his feet are killing him and he tries to take his shoes off. But he can't get the laces to untie and he starts to cry. It's not just the shoelaces but "the fact that he didn't even know who or what he was" (1919.17).
As he continues to struggle with the laces, he sees his fingers and hands growing again, but this time they are becoming intertwined with the shoelaces.
The police eventually arrive, arrest Shadrack, and throw him in jail. In his cell he has the overwhelming urge to see his face. He looks at his reflection in the toilet, which calms him down. Even his hands are "courteously still" (1919.20).
The police realize that Shadrack is from Medallion, which is just a few miles from the jail, so they put him on a vegetable wagon and send him home.
On his way to Medallion, Shadrack starts to think about some big issues, like fear and death. He realizes these things don't scare him, but the "unexpectedness" (1919.23) does, so he devises a way to deal with the unknown by creating National Suicide Day. (At this point it isn't really national, since only the people in the Bottom know about it.)
He thinks that a good way to control death would be to make it all happen on a single day, January 3 of every year, so "everybody could get it out of the way and the rest of the year would be safe and free" (1919.23). So he walks all around the Bottom that day and invites people to kill themselves, or someone else.
The townspeople are understandably freaked out by Shadrack (and the fact that he's carrying a noose probably doesn't help), but as the years pass by, people get used to him. National Suicide Day becomes just another part of life in the Bottom. It's not that people actually commit suicide or kill on this day, but they start to refer to the day in conversation and as a way to mark time. Eventually, "Easily, quietly, Suicide Day became a part of the fabric of life up in the Bottom" (1919.34).