The church had caught fire and there were little children inside. Ponyboy and Johnny both ran inside the burning church to save the children. Dally stayed on the outside to pull the children away from the building.
Ponyboy, and Dally are waiting in the waiting room to see Johnny and see how he is doing. Ponyboy and Dally are both nervous to see Johnny in the condition he is in.
Johnny dies from the burns of the building. Dally gets mad about Johnny dying. Ponyboy cries and tells himself that Johnny isn't dead to try to make him feel better.