This will get lengthy. So i will assume that you at least remember that before this flashback they were fighting against the Noahs and Apocryphos was capture by them in all that shit show ( here you already have a resume about that at least ), after that Allen opened a portal to escape ( it is a little more complex than just escape ) but anyways Kanda was close to him and followed him, no they are in England ( if i remember correctly ) right where the circus was in the past were is too a tree with a carving made by Mana, so this flashback is more or less Allen telling Kanda about his past ( yeah i know Kanda caring for another persons story, it gives me the chills too, but Allen did do an important thing for with that whole Alma thing ).
Now what happened in the flashback is pretty straight forward but at the same time complex not because of the story told in the flashback but because of information told leading to it, so will try to be short, the millennium earl was one person many decades ago but tired of life and the memories of Noah he dived himself in two parts, they being Mana and Neah, they were babies when first divided and were in the care of a woman with the surname Campbell that acted as their mother. Some point in the early adulthood they remembered who they were, about the Noahs, and this lead to the whole betrayal thing with Neah and the Noah ( no details on this yet ).
Now make a leap, apparently, Allen was chosen as a host to Neah so that he could survive and apparently he was one time an adult and friend of Neah, why he turned in a child we don't know, but in some point, this child "Red" gained the innocence (his arm) and was abandoned, got "adopted" by a circus and meet Mana that was in a state of refusal and amnesiac since the whole betrayal thing by Neah.
More things than that it would take too much time, i think with this resume in mind you could read the last 20-30 chapter and get the picture more or less, but this is the best i can do for you.