Spoilers: Meaning of the entire movie in the scarecrow story?
When they first meet pacino tells the story of:
In so many words "the farmer thinks the crows are screaming and leave his corn alone because of the scarecrow, but really they are laughing and saying "that farmer is alright, he is a funny guy, we will leave his crops alone for making us laugh".
One meaning this holds in the movie is the way both pacino and hackman tend to think about things backwards and lack logic.
Another deeper meaning I tend to see more and more of every time I watch this movie is that pacinos character and all his goofing around is a defense mechanism for his fear. He wants people to percieve him and his existence like how he percieves the crows laughing not screaming.
If you notice every time he gets scared through the movie he uses crazed silly humor as a defense mechanism. Such as when hackman is about to shoplift a gift for his sister and her friend, pacino starts going all weird and funny.
When finally it all comes down on him, having been beaten and hurt for his silly nature, calling his wife and being told it is his fault for his son dying, and finally in the scene where hackman has taken this mindset on in a GENUINE way, to just have a laugh at the world, and pacino has the morbid/envious look on his face watching it.