Owen spends two stanzas telling us what his subject is not. Death is not the worst thing when it comes to "one in dearth / Of life and its laughter", someone with little to lose. Nor is it the "sweet murder / Dealt slow and even / Unto the martyr / Smiling at heaven." Only after the colon does the real subject arrive: "It is the smile / ... On a boy's murdered mouth." The poem is a delayed blow. Everything before the colon is a consolation, either a death that costs little or a death that faith makes meaningful. The boy's smile is what remains once both are refused.
The central idea is that the horror of a young soldier's death lies less in pain or oblivion than in the small trace of innocence left on his face. The poem never says why he smiles, and that ambiguity is its strength. The smile might be the last of an unguarded boyhood, or the final echo of a story he was told about dying nobly. The phrase "waning myth" nudges us toward the second reading. The smile is the fading remnant of a belief, and the poem looks at it with pity instead of pride.
The word choices are carefully hard. "Murder" appears twice, once softened by "sweet" and once stripped bare in "murdered". Owen avoids "killed" or "fallen", words that sound tidy. Even the martyr is murdered, but gently, "slow and even", a death with a shape and a purpose. The martyr also smiles *at* something, heaven, so his smile points outward. The boy's smile is simply "On" his mouth, a mark on a surface with nothing to look towards. "Waning" is an unusual word for a myth, and I'd suggest it also evokes the moon, so the faint smile might be pictured as a thin crescent. The brackets round the word in this text hint that it was a provisional choice, but the moon image still fits.
The sound patterns do just as much work. The first two stanzas rhyme *abab*, but not comfortably. "Death" and "dearth" are close but not identical, and "even" and "heaven" share only a skeleton of sound, a pararhyme. Owen is well known for this kind of half-rhyme, and here it leaves the poem faintly unresolved even when it seems orderly. In the last stanza the rhyme thins almost to nothing. "Smile" and "small" share only their outer consonants, and "myth" and "mouth" do the same, as if the music were wearing away along with the smile. Those last two words also end in the same "th" sound as "death" and "dearth", so the poem finishes on the sound it began with. The word that was never quite spoken, death, is echoed in "mouth".
The rhythm helps. The opening lines are short and clipped, four to six syllables each, like statements being ticked off. The final stanza settles into three even six-syllable lines and slows down. The repeated "Faint, and exceeding small" has a comma that forces a pause, as if the speaker were leaning closer to see. "Exceeding" is a slightly formal, almost biblical word, and it gives dignity to something tiny. The last stanza also has only three lines where the pattern led us to expect four. I can't say whether that is deliberate or the sign of an unfinished text, but the effect is that the final image arrives with nothing to cushion it.
Owen was a soldier as well as a poet, and he was killed in action in November 1918, a week before the Armistice. That context adds weight to the poem's refusal of easy comfort, though the poem doesn't depend on it. In "Dulce et Decorum Est" he calls the idea that dying for one's country is sweet and fitting "the old Lie". This fragment attacks the same consoling stories in miniature, through "sweet murder" and "myth". What makes it significant is its restraint. It doesn't describe wounds or shout at politicians. It fixes on one faint detail and lets that small, unreadable smile carry all the accusation.