I used to reread it fairly frequently in the hopes that eventually, someday, I would figure out wtf was going on. I eventually decided (and this was a while ago, so I might not remember details correctly) that what's going on is that the main character's family is involved in some sort of espionage or ... something? ... and they are put in basically a Witness Protection Program, but the bad guys find them. Narrator is the only survivor and is taken by the... government? bad guys? I am not sure we actually know? and given lots and lots of drugs so that they can figure out whether he knows anything. (I can't remember whether he actually does know anything or not, or whether it's even possible to tell from the book.) The drugs totally screw up his brain so he goes insane and keeps thinking he is escaping (the "trip" he takes on his bicycle), but it's actually all just a big drug-induced hallucination (hence that last scene where all the people in the asylum actually look like the people he saw on his "trip"). I think there's some indication (there's a note most of the way through about how the recommendation is to keep the subject until he "obliterates") that the drugs are messing him up progressively worse and he'll probably eventually just, well, obliterate.