I love this song too. As you may know his grandmother died from Alzheimers disease. I saw an interview with Costello, where he talked about how some days when he visited, she would be herself, and other days, she was no longer "herself" and seemed to be living in her own past. This part of the song is very poetic and figurative (and probably means different things to different people). For me, this is what I think it means: 65 years ago, Veronica was young and in love with a man who was on the ship (the empress of India), that shipwrecked (and he must have died). So after he died, her world changed - she closed her eyes upon the world (she shut everyone out and kept thinking about the horrible news of the shipwreck and his death). And the last sentence, she says his name out loud - which says that today, even though she is in this nursing home, her mind is replaying what happened 65 yrs ago.