Leper is lured into enlisting in the army after seeing a misleading recruitment film, not realizing that he is totally unsuited for military service until it is too late. He is traumatized by the strict, harsh environment of military life, unable to eat or sleep, and eventually, he begins to hallucinate. Leper goes AWOL (away without leave) before the army discharges him as a "Section Eight", signifying that he is unfit for service due to mental illness. Going AWOL is a serious offense, but Leper does not want to be branded as a mental case for the rest of his life. When Gene sees Leper, he is no longer the innocent, gentle student he had been at Devon; he now sees Gene as a "savage", much like the men in the military.
Leper actually has his breakdown before the action of Chapter 10, but when he is talking to Gene, Leper's fragile mental state is revealed to Gene. When Leper is in boot camp, his anxiety and eccentricities that had been tolerated and somewhat coddled at Devon become obvious to all, including Leper himself, and when he goes into a psychotic rant, his superiors begin the process of discharging him for being mentally unfit. Leper is sane enough to realize that a Section 8 discharge will be life altering in a negative way; so he deserts the military.
In Chapter 10, when Gene goes to visit Leper at his home in Vermont, Leper no longer has the ability to hold in his suspicions and paranoia. He associates Gene (whom he saw jump on the branch, causing Finny's injury) with the "cruel" men at boot camp and projects his fears onto Gene.