This chapter is about how important controlling thinking is to the smooth functioning of a collectivist system, and how the first casualty of that is paying attention to real-world truths.
In the case of a totalitarian system this is easily recognized. The "total" in totalitarian includes the economic system and how people of the community are thinking. But even in less extreme cases there is often a conflict between "getting with the program" and what is happening in the real world. One of the virtues of a competitive system is that it keeps the real world staring in the face of every decision maker.
Hayek points out that this is why propaganda is such an important part of every totalitarian system. The state must not only inform the people what the decision makers have decided is right, they must whip up enthusiasm for the choice.
This process of informing gets horribly twisted because, in addition to always being right by defintion, the decision makers are also expedient -- they can change their minds and change the plan. When they do, the truth changes. This is the source of that great Orwellian "1984" irony, "We were always at war with Eastasia." when in the middle of the story the Oceanians switch sides from warring Eurasia to Eastasia.
Hayek points out that this kind of truth-twisting is pretty much inevitable with a centrally planned system, and that competition is a good way to combat it.
He also points that that the truth-twisting inevitably spills over into morality, and the result is moral systems built on pseudo science and mythology that both stokes popular emotions and supports the decision makers plans.
One effective way to do this truth-twisting is to change the definition of popular words, such as liberty -- Orwell's "newspeak". Hayek points out that even fields as objective and real-world connected as science and science research get pulled into this moral system.
How does this apply today? Scientific research, careful rigorous analysis, and the scientific method are new concepts and new methods of thinking. They take a lot of work and a lot of training to get even modestly comfortable with. Getting with the program is a very old concept, so it's very easy to get comfortable with. As a result truth twisting is very much alive and well today throughout all communities and societies.
But truth is much more important in civilized living than in Stone Age living, so truth twisting is a lot more damaging now. Analysis and spotting truth-twisting are important modern-living skills.