As the title says (just with funny British spelling), this chapter is about how to recognize a witch. It's in dialogue form: Grandmamma doles out the information and the narrator helps her along with a lot of "why"s, "how"s, and "what"s.
Grandmamma tells her grandson that you can't always recognize a witch, but that they do have some distinctive features to keep an eye out for:
They always wear gloves because they have claws instead of finger nails. So far, so creepy.
They always wear a wig because they're bald. (Grandmamma's advice here: Don't tug on the hair of every lady you see, or you'll cause some trouble.) This wig gives them wig-rash, which makes their heads really itchy.
Witches have big, pink nostrils, which give them a great sense of smell – all the better for smelling children (big bad wolf, anyone?). To witches, children smell like dog poop. Yep. And the cleaner they are, the more they stink. Our narrator smartly concludes that he "will never have a bath again" (3.41). Good call.
Their eyes change colors and have fire and ice dancing around inside them. Spooky. This is when Grandma starts getting super-serious. She reminds her grandson that witches are not actually human – they are "demons in human shape" (3.60).
Witches don't have toes, just square feet. Unfortunately for them, they still have to wear normal lady-shoes, which are usually pretty pointy, so they might limp a little.
They have blue saliva. This is just plain cool, except it means they can never spit.
After all this, the narrator is sold. Witches must be real.
Upon questioning, we learn that Grandmamma herself once encountered a witch (the narrator thinks that may be how she lost her thumb). She refuses to talk about it though, and suddenly becomes very still and quiet, and the narrator has to put himself to bed.