Mr. Daniels looks surprisingly happy one morning. He announces that after they wrote nature poems last week, he entered all of them in the first ever Fantastico Poetry Award. Ally hopes that Albert will win and watches Shay. As Mr. Daniels begins to announce the award, Ally sees Shay look surprised and then disgusted. Mr. Daniels puts his hand on Ally's shoulder and congratulates her. Ally can't figure out how this happened as Mr. Daniels invites her up to collect her prize.
From what the reader knows of Mr. Daniels, it's likely that he chose to bring up the poetry award in this way so that Shay wouldn't have a chance to bully others into writing bad poems on purpose. He may also have come up with the award to give Ally a way to feel successful, since Ally goes on to mention that she never wins things like this.
Ally feels like the floor will swallow her and sees that the poem in his hand is indeed hers. She begins to feel happy she won an award and thinks that this used to be something that would only appear in the Sketchbook of Impossible Things. She's happy she has her poem memorized when Mr. Daniels invites her to read it. He motions for everyone to applaud and as Ally watches her classmates, she thinks of all the good poems they wrote. As Mr. Daniels extends a certificate and a coupon for ice cream, Ally finds she can't take them. She knows this is a pity award and thinks this is the worst she's ever felt. Ally runs out of the room.
Though the reader has mostly only seen actual fantastical things in the Sketchbook, Ally's assessment that winning an award was formerly unthinkable shows just how unsuccessful Ally feels when it comes to just getting through the day. Her assessment of this award being a pity award is likely wrong, and the fact that she won tells the reader that things are beginning to turn around for her.