In Chapter 5, what is Simon referring to when he says..."...maybe it's only us that we're afraid of"?

What Simon knows, and the rest have yet to discover, is the magnitude of Jack and his gang's savagery. When he says "...maybe it's only us that we're afraid of” he means that maybe we know that there isn’t a beast, but it’s easier to fear the beast than it is to face the reality that we’re actually afraid of each other.

Simon is trying to convince the boys that they do not need to fear the beast. Simon knows that Jack created the beast to make the members of his gang fearful. By instilling fear, Jack tries to make himself out to be a better leader than Ralph by offering his protection from the beast.