In A Separate Peace, Finny's fall is symbolic of the loss of the blissful summer that the boys have experienced before "the gray encroachments" of World War II come upon them. As an almost allegorical hero, Phineas provides the students and faculty alike something to believe in that is beyond the ordinary; Finny creates a "special America" for the boys at Devon where they play blitzball and the war seems far away.
Finny is the blythe spirit that represents the impulsive, imaginative nature of youth, the imagination that denies reality for the belief in the ideal. When he falls, others become disillusioned and misdirected, their innocence gone. It is as though the boys have been sent from an Eden with its clear, clean Devon River to the mudded and sullied world where the Naguamsett River flows with its ugly, marshy waters.
Without Finny's exuberance and ingenuousness directing the boys, Gene and the others realize that there is a real world, one that has sin in it. Gene finally recognizes his sin of jealousy when none was needed, for Finny felt none towards him. Gene's redemption from his sins is effected by his epiphany, his moment of grace, when he becomes aware that his private evil has been generated by "something ignorant in the human heart." In short, Gene accepts human frailities along with the ideals, that tree with the broken limb.
Finny's fall can be seen ultimately as Gene's fall from grace. Gene is the cause of Finny's fall, and throughout the first few chapters Gene would project his insecurity and envy onto Finny although Finny, being so naive and pure hearted felt no such inclination himself.
Finny's fall leads to Gene growing up, and ultimately at the novel's conclusion Finny's fall is the death of Gene's youth and childhood. Kind of like when Adam accepted the apple from Eve. Finny's fall was Gene's forbidden fruit from the tree of knowledge, because Finny and Gene's innocence are the casualties in Gene's own personal war with his inner nature.