The man wasn't Flyora's uncle, but village elder, appointed by Germans. In the beginning of film, we see him trying (in vain) to stop the boys from looking for weapons, because he knew that it means death for his village's people. He scolded the boys using the saying "those who don't listen to *uncle* (friendly advice) will "listen" to cane (beatings"). While murdering the villagers, Germans doused the elder with gasoline, and set him in fire.
The scene was real, supposed to show Flyora's shock and despair, for he felt himself responsible for the plight of his village, and deaths of its people, and his family. The severely burned elder (his name was Yustin) was saying something like: "I told you... told... you ... don't... don't dig...", and how the Germans burned him alive.
They did, for a good reason. With a gun, the boy could have been accepted into "forest", that means into partisans' ranks. The partisans posed a major threat for a Germans indeed, even more than the very Soviet Army then. As a result of German advances, their communications were overstretched, thus becoming vulnerable.