Ponyboy and Johnny are greasers, a class term that refers to the young men on the poor, East side of town. They and their friends feel like real outsiders with their greased, long hair and rough appearance. The greasers' rivals are the Socs, short for Socials, who are the "West-side rich kids." Socs wear nice clothes and short, conservative hairstyles.
In a street fight between the greasers and the Socs, Johnny accidentally kills a Soc. Johnny and Ponyboy flee and hide out in an empty church. When they realize that they are running from the law, Johnny cuts and bleaches Ponyboy's hair in an effort to blend in and disguise his appearance. Ponyboy in turn cuts Johnny's hair.
Ponyboy loves his family and community. His long hair was his pride and joy. But losing it, the outward trademark of his identity as a greaser, changes his perspective and everyone else's. He and Johnny no longer appear to be greasers. Dally, another of the greasers, also sees the transformation when he next sees Ponyboy. Dally states: "He looks different with his hair like that."
So the boys' new short haircuts offer them more than disguise; they symbolizes the fact that they are cutting their ties with the past. As they hide out in the church, Ponyboy daydreams about being with his brothers, Darry and Soda, and how wonderful life was at home. But he can't return.