Hard not to make this a personal answer, and hard to find reference points to make it objective. The song is clearly not telling a story, so more likely it is about describing a mood or state of mind.
Syd's behaviour at this time was erratic, and his mental health was fragile - although at the same time he was able to perform and give interviews. 1971 interview, Melody Maker
The wiki article for the album "Barrett" talks of it as :
"The lyrics that describe the way for a person to kill time (such as the line "In the clock they sent / Through a washing machine")."
quoting Rob Chapman's (2010) book, "Syd Barrett: A Very Irregular Head"
Not sure about that myself : for me, like many of Syd's songs, it hints at depression, loneliness, a feeling of alienation, all expressed in a restrained whimsical English way.
"In the sad town cold iron hands clap the party of clowns outside"
"Baby Lemonade" is maybe a nickname for a lover or close friend.
"I'm screaming, I met you this way you're nice to me like ice... come around, make it soon, so alone please, please, Baby Lemonade"
Probably not wise to look for a total explanation of every reference.