Teacher Burt Ross has carried his "experiment" about as far as he can by the time we get to the pep rally scene. By trying to demonstrate to his students how the Nazi Party could possibly come to power, he has created a monster of sorts of blindly devoted students who are turning into thugs and fanatics for his new movement, "The Wave".
He decides to set things right at the pep rally. He shows up in front of the cheering, saluting crowd of kids, and starts off by whipping them into a frenzy, much as Hitler did with his crowds. Then he flips on the TV monitors and screams "There is your leader" as Adolf Hitler pops up on the screen giving one of his speeches.
The stunt works, and the kids become aware of how sucked in they were to the experiment.