The battle rages in front of Henry's regiment. Soldiers watch and argue about its progress, claiming that various parts of their army are getting crushed while others are winning decisive victories.
For the soldiers and reader alike, it's hard to know what's actually happening or who's winning during the battle.
Artillery shells and bullets start hitting the ground and trees around Henry's position. Their lieutenant is shot in the hand and swears so terribly that his men laugh nervously.
The lieutenant sustains the first wound. Rather than being a badge of courage, it seems funny. The significance of wounds will keep changing.
In the distant smoke, Henry sees a Union battle flag fall over. Suddenly, a mob of blue soldiers retreats through the woods, running away from the wild yells of another mob, gray and red, in pursuit. Furious officers scream to stop and beat their panicked men, but they keep running. Henry hears nearby veteran soldiers mock the retreating men sarcastically.
The fallen flag symbolizes a defeat for the soldiers and for their commitment to fight as a unified force. When it falls, every man runs helter skelter for his own life. Note how the only things that distinguish the two sides are flags and colors.
Henry realizes that if he started to run, nothing could compel him to stop. But he doesn't run yet: he wants to see whatever monster caused this frenzied retreat.
Henry sees the uncontrollable force of human nature in the panicked retreat.