In this chapter, the Velveteen Rabbit, newly gifted to the boy, finds himself in the bustling environment of the nursery filled with various toys. This is his first encounter with the other toys, which include a variety of stuffed animals and mechanical playthings, each with their own unique characteristics and personalities. The atmosphere is warm and welcoming, yet the Rabbit quickly realizes that he is different from the other toys, who have been around longer and have their own stories.

The Rabbit's initial excitement is tempered by his curiosity about what it truly means to be 'real.' Here, he meets the Skin Horse, an older and wiser toy who has seen many children come and go. The Skin Horse explains the profound concept of becoming 'real'—that it is not about physical appearance or material condition, but rather about the love and emotional connection shared with a child. He shares his experiences, revealing that it is the love received from children that transforms toys into something much more meaningful.

As the Rabbit listens intently, he learns that becoming real comes with trials and tribulations, yet it is the enduring love from the child that ultimately makes the journey worthwhile. The Skin Horse speaks of the love that changes toys, making them feel alive and cherished, which deeply resonates with the Rabbit's own desires.

The chapter emphasizes the themes of friendship and community among the toys as they share their perspectives on what it means to be loved. Each toy has its own experiences and insights, which contribute to the Rabbit’s understanding of love and acceptance. The conversation reveals a hierarchy among the toys, where those who are well-loved are considered 'real' in the emotional sense, while newer toys like the Rabbit are still on the path to achieving that status.

Through this enlightening dialogue, the Rabbit grows more determined to cultivate a bond with the boy, as he begins to grasp that love is a transformative force that can elevate him from mere inanimate object to a cherished companion. This chapter sets the stage for the Rabbit's journey by establishing the significance of emotional connections in the world of toys, and it foreshadows the challenges and joys that lie ahead as he seeks to become real in the eyes of the boy.