They were experimenting a way to maintain immorality on plants and wondered if it work on humans. Emiya want to be part of it but was denied by his father. Later Shirley was preached by the local church priest for being with Emiya due to the rumors of the cursed shrine near their home. She was also given a dagger from the church as a protection and show off to Emiya.
Later, Shirley brought Emiya to a lake and explain that his father could save lives with his research and hope that Emiya can take over him. She also asked what kind of adult will he be when grow up. Emiya did not replied and was teased by her.
The next day, Noritaka instructed Emiya not to go to the village and hurried off. Emiya waited for Shirley but she did not come. He went to look for her and discovered a bottle belong to his father's research in her house. Emiya found Shirley eating the livestock like a craze animal. She begged him to kill her with the dagger before she went out of control. However he couldn't and she fled further into the forest.
The priest brought Emiya to the church after discovering the mess and went to look for Shirley. Suddenly he was attacked by villagers who have become zombies-like creatures. Emiya witnessed everything and tried to hide from the zombies.
A group of men in robes appeared and killed the zombies. Emiya escaped from the back window and discovered the village is in flames and the zombies are attacking the people. Another group of men in suits were also killing the zombies and burning everything down.
Emiya was almost killed when a grey-haired lady appeared with a shotgun and killed the zombies. She took him to the hill and explained the situation. The zombies are called Dead Apostles feed on blood and it is infectious to anyone bitten by them. The Church people (Men in robes) are killing all the villagers with no regards if they are infected or not. The other group belong to the Magus Association are trying to destroy all evidences of the infection, leaving no witness behind.
Emiya asked the lady who she is and she replied that she is a mercenary hired by the Magus Association. She claimed that the Dead Apostles were believed to be created by a Magus and her job is to kill the Magus.
Emiya knew who it was and confronted his father who is planning to flee. His father did not show any remorse when he find out Shirley was the one who drank the serum and turn into a Dead Apostle. He immediately stabbed his father with the dagger and shot him dead.
The lady arrived and decided to take Emiya away from the burning island...
So the beginning of Emiya's childhood days and his innocence was destroyed, no thanks to his father's research that turned Shirley into a monster. It was kinda of scary to see a zombie like scenario in Fate Zero but it was cool. Especially when the last good zombie anime was High School of the Dead which I am still waiting for Season 2.
Emiya's reasons of hating Magus and the Church people can be understand as they were willing to kill and destroy any evidences irregardless of human lives which further fuel his anger. (I mean his first crush was turn into a zombie by his father's work) Anyway, the next episode is Emiya as an adult and his life before he met Iris...