In "By the Waters of Babylon," what did John realize about his people's stories and legends?

John realizes that the “gods” are just humans who were killed by the Great Burning.

There was some kind of catastrophic apocalyptic event in John’s world that turned New York City into a wasteland.  John’s community became very primitive, but is clearly derived from what was once our society. His people are afraid of the places we used to inhabit, and do not realize that’s what they are.

It is forbidden to cross the great...

John realizes that the “gods” are just humans who were killed by the Great Burning.

There was some kind of catastrophic apocalyptic event in John’s world that turned New York City into a wasteland.  John’s community became very primitive, but is clearly derived from what was once our society. His people are afraid of the places we used to inhabit, and do not realize that’s what they are.

It is forbidden to cross the great river and look upon the place that was the Place of the Gods—this is most strictly forbidden. We do not even say its name though we know its name. It is there that spirits live, and demons—it is there that there are the ashes of the Great Burning. 

John is studying to be a priest like his father. He has a vision that he should go check out the Place of the Gods, and he does it without fear. Once he is there, he realizes that there are no gods. The places his people think gods inhabited contain the remains and artifacts of dead human beings.

That is all of my story, for then I knew he was a man—I knew then that they had been men, neither gods nor demons. It is a great knowledge, hard to tell and believe. They were men—they went a dark road, but they were men.

John sees a new vision for his people. He decides that they need to reclaim their heritage. Rather than live in fear, they need to rebuild. They should return to New York, and reestablish the society that the people once had on the ashes of the civilization they once thought belonged to the gods.