Most good stories start with a fundamental list of ingredients: the initial situation, conflict, complication, climax, suspense, denouement, and conclusion. Great writers sometimes shake up the recipe and add some spice.
Initial Situation
An ordinary seaside village…
This short story starts, as short stories should, with something significant happening. We're not in the initial situation for any length of time at the start of the narrative, but from later information about the village we can infer what the initial conditions looked like. In retrospect, we're introduced to a dry, bleak little village with no ambition to be anything other than a dry, bleak little village.
Conflict
The Drowned Man arrives.
This is the "something significant" that launches the story. The drowned man's arrival brings any number of conflicts or questions with it: where did he come from? To whom does he belong? Who is he? What will his arrival mean for the village?
Complication
The Drowned Man is the handsomest, biggest, and strongest man in the world.
This is no ordinary body. The various conflicts from the previous stage take on greater weight now that the drowned man is of such great importance. When the women decide that he is Esteban, the plotline is further complicated by the mythical implications of such a name.
Climax
The villagers give the Drowned Man a funeral.
The final paragraph of "The Handsomest Drowned Man" is a climactic one. The body is returned to the sea, and as it falls the villagers realize that they will never be the same. In this moment they "realize the narrowness of their dreams" and resolve to do better, live larger, and make their village matter.
Suspense
Not much suspense…
The climax and conclusion of this story are both wrapped up together in the final paragraph. We don't really have a suspense or denouement stage.
Denouement
Not much for denouement…
The climax and conclusion of this story are both wrapped up together in the final paragraph. We don't really have a suspense or denouement stage.
Conclusion
The villagers now have a new vision of the future.
The fantasy of the ship's captain announcing the village as Esteban's constitutes the conclusion of this story. The villagers have decided to be significant, to make their village matter, to distinguish themselves as being great, and create a village worthy of the drowned man.