Yes you can figure out the meaning of an unfamiliar word by its context.
Explanation:
"Figure out the meaning of an unfamiliar word by its context" means that you can look around the word you do not know the meaning and try to find a general meaning according to what you understood reading the whole text.
The answer is the amputation of the lieutenant's arm. None of the other options are events in the story. The lieutenant returns home and we don't know the outcome of the battle. There is also no evidence he was ever ill.
