The hospitalization and death of Kemmerich serves a number of purposes as Remarque illustrates the inhumanity of war. The first, of course, is the pain that Kemmerich felt as a post-surgical amputee with inadequate morphine. That the doctors could be bribed with cigarettes but not moved by compassion shows just how hardened these doctors had become.
That someone stole the watch from a dying man is another demonstration of the loss of morality and civility in the war hospital setting.
The most shocking picture, however, comes in the form of Kemmerich's boots. Mueller's obvious desire for them is both horrifying and understandable. War forces people to become pragmatic to the point of callousness. Mueller knew two things: Kemmerich would not return to the front and good boots were hard to come by. Still, it seems cruel to ask for the boots before Kemmerich fully realizes his fate. War does that.
Remarque uses one scene to illustrate the horrifying and dehumanizing side of war; while the protagonist is still fairly naive, he witnesses reality, and the reader witnesses the reality alongside.