How does what happens to Simon demonstrate the dangers of fear?

In the time leading up to Simon's death, the boys are becoming more and more convinced of the possibility of a "beastie," and start to experience the fear that accompanies that possibility. Jack has realized he can use that fear to lead the boys and gain power over the lot of them. The boys have begun to revel in the dance that mimics the hunt and the kill. The frenzy of it appeals to them and helps to assuage the fear somehow.

It is Simon who realizes that this fear is a fear of what is inside of them, not a fear of what may or may not exist on the island. During his vision with the "Lord of the Flies," he realizes that the beastie is inside of each and every boy.

When he emerges from the jungle with the knowledge that the pilot they thought was the "beastie" is just a pilot and that what they are afraid of is inside of them, their fear drives them to beat him to death. This highlights the way that fear can overcome reason and drive people to do what would otherwise be beyond them.