There is only a very short flashback in this chapter. It comes around the middle of the chapter when Ponyboy has just found out about the fact that he and his brother Sodapop in a boys' home. The flashback has to do with a time after his parents died.
In the flashback, Ponyboy talks about how he dreamed every night after his parents died. He talks about how he could never remember the dream, but that it was the same dream every night and it was terrifying.
It is clear to us that this dream was caused by stress and loss. This is why Ponyboy has it again when the threat of being taken away from his brothers arises.