The first thing that happens there is that it serves as a place for Johnny and Ponyboy to lay up and stay out of sight. After Johnny gets them some supplies from the town, the two boys stay there and play poker, read Gone With the Wind and just let the time pass by. Then Dally shows up and they go off to get something to eat.
When they come back, they find that the church is on fire and then learn that a bunch of kids are stuck inside. So Johnny and Ponyboy break in through a window and rescue the children just before the church collapses. Unfortunately Pony is badly burned and Johnny is critically injured when a burning beam falls down and hits him, breaking his back. Dally manages to reach in and pull Johnny out but it is unclear whether he will survive his injuries.