The story of a young O'Brien and his love interest, Linda, really brought the entire book together for me. Timmy was in love with Linda at such a young age, and her unexpected death was both heartbreaking and puzzling for young Timmy. I believe O'Brien included this story at the end of the book in order to explain his need for telling stories, for escaping. He even said it himself: he invented his own dreams and included Linda in them, who is very much alive in his fictional world. He slept in broad daylight in hopes of spending time with his love. Even in the years of writing "The Things They Carried", O'Brien admits he still thinks about Linda as he creates stories. In a way, Linda's death is an impetus for the start of O'Brien's writing career.
Timmy may not have necessarily understood death when he was exposed to Linda's corpse in her coffin. He could barely even recognize her in her post-mortem state. As far as the reader is concerned, this incident is the first time that O'Brien had ever seen a dead person face-to-face. His reason for including this story may have been to let his readers know that although he had been introduced to death pre-Vietnam, the entire concept was still new to him as far as comprehending and coping with the entire grieving process.
On the last page of the book, O'Brien says he is "Tim trying to save Timmy's life with a story". In other words, does Linda's death still haunt O'Brien to this day, and is his need to write stories an attempt to save himself from his own destruction?