Harry gets several blocks before he has to rest in Magnolia Crescent. After ten minutes, he's in a full-blown panic. He did illegal magic and, to make matters worse, he's stranded in the muggle world. Harry wonders if he'll be kicked out of the wizarding world and laments that Hedwig is gone—he can't even ask Ron or Hermione for help. Realizing he also has no muggle money, Harry wonders if, since he's already expelled, he could enchant his trunk and fly to London. As Harry starts to fish in his trunk for the Invisibility Cloak, he feels like he's being watched. He senses somebody in an alleyway and lights his wand. He sees something huge with bright eyes. Terrified, he steps back and trips over his trunk.
Harry's belief that he's expelled already for what he did indicates that, at this point, he trusts the Ministry of Magic to follow through on what they said would happen. In other words, Harry sees the government as being black and white and doesn't expect to encounter shades of gray with it. This sets Harry up to, over the course of the novel, discover that the Ministry of Magic isn't actually black and white at all: while they'd like wizards to think they are, it's actually far more complicated.
Harry throws his hand out to catch himself and just as he hits the street, he hears a loud bang. He rolls out of the way as a purple bus stops in front of him. It reads "The Knight Bus" on the windshield. The conductor steps out and begins his spiel, introducing himself as Stan Shunpike. When he notices Harry on the ground, he stops and asks why Harry is lying down. Annoyed, Harry jumps up and looks back to the alleyway. He starts to explain that he saw a dog, but stops when he notices Stan looking uneasy. He tells Stan his name is Neville Longbottom and asks to go to London. Stan accepts Harry's money and then helps lift Harry's trunk onto the bus.
The fact that Harry didn't know about the existence of the Knight Bus reminds the reader again that Harry, with only two years of formal education and exposure to the wizarding world, still has a great deal to learn about his world. At this moment, Harry is receiving a valuable practical lesson about how his world works and what's available to him if he knows how to ask for it.
The bus is filled with beds instead of seats. Stan settles Harry in the bed behind the driver, Ernie Prang. With a bang, the bus seems to jump 100 miles—Stan explains that they're in Wales when he notices Harry's shocked face and says that muggles don't hear the bus because they don't listen well. He fetches an ill-looking witch, sees her off the bus, and then with another bang the bus jumps. Harry's stomach churns, both from to the bus's action and from his worry about Aunt Marge.
Stan's comment about muggles not listening properly suggests that their inability to detect the wizarding world is just a matter of knowing what to look for—in other words, they don't see it because it's never occurred to them to question their own versions of reality, where buses like this are only fantastical ideas.
Stan opens up a copy of the Daily Prophet and Harry notices Sirius Black, the man from the muggle news, on the front page. When Harry shares this with Stan, Stan chuckles and gives the front page to Harry to read. The article reads that Black is still at large and that Cornelius Fudge is facing criticism for telling muggles about Black. It says that wizards are afraid of another massacre like the one twelve years ago: Black murdered thirteen people with one curse. Harry hands the page back to Stan and Stan explains that Black was in league with You-Know-Who. Not thinking, Harry says "Voldemort," which makes Ernie swerve and Stan yelp in fear.
This article confirms that Uncle Vernon was way off base with his assessment of Sirius Black on the muggle news: there's more to worry about, even for muggles, than the fact that Black looks terrifying. Further, when the article notes that Fudge is being criticized for telling muggles about Black, it indicates that the government is being questioned for its policies, which suggests that Harry should question it too.
Harry apologizes and asks Stan to tell him more about Black. Stan says that after Harry Potter bested Voldemort, the government tracked down Voldemort’s supporters. Ministry officials cornered Black on a street and Black blew half the street to pieces, killing a wizard and twelve muggles. Then, he laughed and went quietly to Azkaban. Stan says that nobody's ever escaped from Azkaban before, since the Azkaban guards are so effective. Ernie tells Stan to change the subject; he hates the Azkaban guards.
Notice that in Stan's story, there's no indication that Sirius Black ever went on trial for what he did. This suggests that while the story Stan tells was believed by many, there's a possibility that Black would be able to tell a different story and never got the opportunity to do so. In turn, this indicates that the wizard justice system isn't entirely fair and doesn't look deeper when it prosecutes someone.
Harry feels horrendous. He thinks that he broke the law just like Sirius Black did and wonders if inflating Aunt Marge is enough to land him in Azkaban. All Harry knows about the prison is what he heard from Hagrid, who spent two months there last year.
Harry's belief that he’s done something as bad as Sirius Black did points to how young and naïve he still is, while his fear of going to Azkaban suggests he thinks the Ministry won't take into account that he's only 13 in their punishment.
Stan gives Harry his hot chocolate and, finally, Harry is the last passenger. Ernie stops the bus in front of the Leaky Cauldron. Stan helps Harry with his trunk but instead of saying goodbye, he stands transfixed by something behind Harry. Harry hears a voice say, "There you are, Harry," and sees Cornelius Fudge. Fudge puts his hand on Harry's shoulder, testily thanks Stan for picking Harry up, and steers Harry inside. Stan and Ernie carry Harry's trunk in and Harry sadly waves goodbye before following Fudge.
As far as Harry is concerned, this is the end of his life as he knows it. Again, this indicates that he takes the Ministry of Magic seriously and believes that they'll follow through and punish him for blowing up Aunt Marge. However, Fudge's behavior towards Harry, which reads as more fatherly than anything else, suggests that Harry is wrong in this regard.
Fudge motions for Harry to sit down and introduces himself. Puzzlingly, Fudge says that everyone was terrified when Harry ran away from the Dursleys, but all that matters is that he's safe now. He says that Marge is back to normal and won't remember a thing, and then he kindly says that though Vernon and Petunia are angry, they'll still house Harry next summer as long as he doesn't come home for Christmas or Easter. Harry insists he never wants to go back, which prompts Fudge to worriedly say that the family must all like each other deep down.
Everything that Fudge says points to the possibility that Harry is somehow not in trouble, which indicates that Harry seriously misjudged what was going to happen. While it's still unclear why the ministry has made this change, it suggests that there's more information that Harry doesn't have yet. Without that information, Harry cannot get a full picture of what's going on.
Fudge says that the only matter left to discuss is where Harry should stay for the last three weeks of the summer holiday. Harry asks about his punishment for breaking the Decree for the Restriction of Underage Wizardry, but Fudge waves this away. Harry reminds Fudge that last year, he got a warning because a house-elf did magic at the Dursleys’ house. Fudge insists that circumstances change and then goes to talk to Tom about booking Harry a room. Harry feels like there must be something going on—underage magic seems a small problem for the Minister of Magic to deal with personally.
Harry is correct that under normal circumstances, an expulsion probably isn't worth the Minister of Magic's personal involvement. His ability to recognize this shows that he's beginning to grow up, mature, and learn to think critically. Most importantly, he’s starting to think critically about his government, how it functions, and why it functions the way it does.
Fudge and Tom return and Fudge makes Harry promise to stay in Diagon Alley. He seems oddly cheery as he packs up to leave, but seems to slip a little when Harry asks about Sirius Black. As the two shake hands, Harry asks if Fudge can sign his Hogsmeade permission form. Fudge uncomfortably refuses and then leaves, while Tom shows Harry to his room. Hedwig is already there.
Fudge's slip at Harry's mention of Sirius Black suggests that Black's escape has something to do with his leniency, though the narration is unclear about whether Harry puts this together or not. This reminds the reader that Harry's critical thinking skills aren't fully developed yet.