In the second stanza of the poem, Owen describes the excruciating agony experienced by a soldier caught in a poison gas attack. The Germans used poison gas as a weapon in World War One; in 1915, in Ypres, for instance, the Germans used chlorine gas against the Allies. Two years later, in 1917, the Germans started using mustard gas. Mustard gas is known to blister the skin, eyes, throat, and lungs of the victims.
The soldier in stanza two is described as a man "flound'ring like a man in fire or lime" to convey the extreme burning sensation he must have experienced. Mustard gas could soak into the clothing of soldiers and cause blisters all over the skin. It could also, once inhaled, burn and blister the soldier's throat and lungs. It is easy to imagine, therefore, that being exposed to mustard gas must feel rather like being set on fire. The reference to "lime" is specifically a reference to quicklime, otherwise known as calcium oxide. Quicklime is a powder that has been used as a weapon in warfare since the Middle Ages. When the powder is dispersed through the air, it can cause choking and suffocation.
The addition of "or lime" to the simile "like a man in fire" effectively adds another dimension to the soldier's suffering. As well as burning, inside and out, so that he feels as if he is on fire, the soldier is also desperately struggling for breath. We might also infer that the more oxygen the soldier tries to inhale, the more gas he will also inhale, and thus the worse the burning sensation will become.