Propaganda can be defined as either twisting the truth or lying outright in service of a political or other agenda. Propaganda is revealed through Beatty, the voice of orthodoxy in the novel, and through the state lying about killing Montag even though he has escaped.
The repressive police state of the novel wants people to believe that banning reading and diluting education are social goods, not means of social control that stunt people's lives. Beatty becomes the voice of the state when he outlines his version of history to Montag while defending the state's insistence on conformity. He says:
Books, so the damned snobbish critics said, were dishwater. No wonder books stopped selling, the critics said. But the public, knowing what it wanted, spinning happily, let the comic books survive. And the three-dimensional sex-magazines, of course. There you have it, Montag. It didn't come from the Government down. There was no dictum, no declaration, no censorship, to start with, no! ...
Surely you remember the boy in your own school class who was exceptionally 'bright,' did most of the reciting and answering while the others sat like so many leaden idols, hating him. And wasn't it this bright boy you selected for beatings and tortures after hours? Of course it was. We must all be alike.
Beatty's words are a mixture of truths, half-truths, and opinions stated as fact. It might be true that the people themselves were the first to turn away from serious books in favor of more mindless entertainment. It may also be true that being different can carry a cost, especially if one is more intelligent than those around them. Beatty twists these ideas to make what is good and necessary for a vibrant society—serious reading and intelligence—seem a problem. Twisting what is good so that it seems evil (or vice versa) is one function of propaganda.
Propaganda again comes into play as Montag escapes the mechanical hound. From his place of safety he finds out that the televised news reports are saying he is dead:
And then, after a time of the men [including Montag] sitting around the fire, their faces expressionless, an announcer on the dark screen said, "The search is over, Montag is dead; a crime against society has been avenged."
Both these instances—twisting the truth and outright lying—seem to serve the interests of the state by showing that, first, its policies are good for people (which they are not) and second, that it is all-powerful (which it is not). But while propaganda can seem to be an effective means of control, in the end, as we see, too many lies destroy the society, which ends up obliterated in a nuclear war.