I found this interpretation on the net and thought it was so interesting and have shared it below. It is testament to Mark's brilliance that he could even conceive of something so rich and beautiful let alone produce perfect music to accompany the story:
This song is beautiful--this might be my favorite song of all time. And it does always remind me of the holidays as I almost always begin to listen to Mark when the weather begins to change in the fall.
Where I have to disagree with you guys is in the song's tone. It's actually a pretty straight forward story, and since no one's taken a crack at breaking it down, I'll give my interpretation of it.
When Jack Frost came for christmas
With a brass monkey date
The rail-king and the scarecrow
Hopped a Florida freight
And they blew on their paper cups
And stared through the steam
Then they drank half a bottle
Of ragpicker's dream where
The song starts off with an introduction of our two protagonists, The Rail-King and the Scarecrow, two alcoholic (see meaning of brass monkey) hobos (bums, homeless folk) are fleeing the bitter cold of the northern United States for the warmer climes of Florida. They try to warm themselves against the cold with paper cups of coffee, but eventually turn to the warmth and mental respite found in a fictional bottle of what is probably some kind of gin or whiskey, called The Ragpicker's Dream. This name has a double meaning at the end of the first verse, and throughout the song. The bottle of liquor also functions as an escape to a dream world--a warm place where loved ones reside and food is plentiful. Ragpicker's were very low, working class people who rummaged and salvaged materials of any value that could be sold. So, a Ragpicker's dream would probably consist of material things that he could never hope to have; wealth, warmth, and a constant supply of food and drink. In any case, it simply translates to getting lost in a bottle.
The whiskey keeps following
Cold pitchers of beer
Me and my associate
Like the clientele here get
The onions and the 'taters
Rib-eyes on the grill
Toothpicks and luckies
And a coffee refill as
This verse is probably a memory within a dream, where the reality of the memory is skewed to have a happier outcome for the two men. The two men are obviously enjoying a meal and some warmth in a restaurant. They are living it up, and probably living beyond their means, which foreshadows what is to come.
The rail-king lay rocking
He was leaving the ground
Then he was flying like Santa Claus
Over the town where
He came to the window
Of a house by a stream
It was a family christmas
In the ragpicker's dream there
Were kids at the table
All aglow in the light
Music in the wintertime
Sure carries at night there
Was turkey and gravy
Pie and ice-cream
And gifts for each and everyone
In the ragpicker's dream where
These two verses, I think, are yet more foreshadowing for the end of the song. I'll come back to this point, but suffice it to say that the Rail-King is dreaming again. He might be remembering a time when he was a child, and life was better. But the dream could also be an amalgamation of scenes pieced together as an outsider looking in the windows of wealthier homes.
The red-eye keeps tumbling
In our glasses of beer
Me and my associate
Like the service in here there's
A ten for your trouble
You have beautiful hair
Make the last one two doubles
It's a cold one out there where
This is where the dream begins to fade back into reality. The two men have had their fill of food and are now getting drunk in the restaurant (red eye is a type of whiskey), and when they leave they are pretty much wasted.
The scarecrow and the rail-king
Have started to dance
But a nightstick and a billyclub
Won't give peace a chance here
I think they went thataways
Your song and dance team
Heading home for the holidays
With the ragpicker's dream on
At this point, the Scarecrow and Rail-King have left the restaurant and are making a lot of noise out on the street, dancing and singing in a drunken manner. It might be inferred that they made an untoward gesture toward the waitress. In the narrator's, memory of the night he recalls only telling her that she has nice hair, and he tips her a ten, which would have been a LOT of money (remember this). But the compliment might have been a little more on the blue side, and more than likely, considering the kind of food they were eating, the drink they imbibed, and the good cigarettes they were smoking, coupled with the fact that they are basically two train riding, homeless guys, leads to the probability that they skipped out on the bill. Someone, possibly the waitress, is telling the beat cops in which direction the two con-men have fled--probably for the train yard.
His knees like a fighter
The rail-riding king
Like a sack of potatoes
Like a bull in the ring where
The scarecrow falls over
With a tear in the seam
Home for the rover
In the ragpicker's dream where
The red-eye keeps tumbling
Like tears in our beer
Me and my associate
Like the ambience here where
They cornered two castaways
In a white flashlight beam
Merry christmas and happy days
In the ragpicker's dream
The cops have now caught up to the two men, and are beating them senseless (Rodney King style) with billy clubs. This scene is foreshadowing the verse where "the Rail-King lay rocking, he was leaving the ground". The foreshadowing in that verse suggests that he has been knocked unconscious, or perhaps he has been mortally wounded and his soul is leaving his body, rising up above it all. In any case, his mind is working to dull the reality of the situation.
The imagery of the two men's beating is so subtle and gracefully written that it's poetic. The Rail-King is trying to fight back, but he is too drunk. He's knocked to his knees and hits the ground "like a sack of potatoes". Meanwhile the Scarecrow, who by his very name is probably a very tall, skinny man incapable of putting up a fight, take one hit and rolls over "with a tear in the seam" (probably a very nasty cut to the head).
Both of the bums have been heavily handled by the cops, and the two men are unconscious and dreaming once again. But as they recall things at the very end, they remember that their good times ended in the glare of a flashlight beam, and in violence.
I find the last few lines particularly poignant, and it's here that the listener has to make a decision on how he/she interprets the song. Were they simply "two castaways" looking for warmth and a place to belong who were picked on by the locals because of their shabby appearance? Or were they two drunkards who behaved badly in public, insulted the honor of a lady, and neglected to pay their bill?
I like to believe the former. I think the tone of the song is sad and intentionally evokes a feeling of pity for these two men. Yes, they are drunks, but I like to think that did nothing really wrong, except to be different. They rode a train into town, leaving troubles and the cold behind, only to find that they were just as unwelcome in the new place as they were in the old place. In essence, their fate had followed them.
And though my interpretation may be a bit more bleak than the way the above posters like to see it, I still think the song is one of the most beautifully written pieces of poetry and music I've ever heard.
