Twain is telling a story about three different things:  1) the inevitability of death (all humans will die),  2) the fear of the average human regarding his own death,  and 3) the power of the imagination in overcoming human reason. 

Mostly, Twain is trying to demonstrate how silly the human fear of death is, so silly and so strong that it will convince a rational man that some rotting cheese is really a dead body, and send him running.  Twain wanted readers to see the folly of the protagonist and to realize, as the train conductor says, that we are all going to die someday, and we might as well accept it.