The Fairy Godmother deceives Lloyd, asking him to check on a squirrel's nest she found there. She says she saw the mother squirrel chew off one of the baby squirrel's claws to stop it from harming the other baby squirrels. When Lloyd gets close to the tree to check, she binds him to it and takes away his magic, thus 'chewing off his claws'. 
Long after this takes place, in Beyond the Kingdoms, Alex is taken to this part of the woods by a magical moth to view this particular memory so she'll understand Lloyd's background and his hatred for the Fairy Godmother and his own brother.
"You would have never done this to John...," Llyod cried. "You'll always love him more...always..."