Chapter 42 seems to bridge two topics. Can you explain what it recaps from the previous chapter and what new major event it introduces?

You are correct, Chapter 42 acts as a bridge. As detailed in the text, it begins by recapping 'a sweet story of wondrous divine play' from the previous chapter. Specifically, it mentions how Sai's portrait was miraculously protected after being immersed in water and how another devotee's desire was fulfilled when Sai appeared in a dream to direct him to read the Dnyaneshwari. After this brief summary, the chapter pivots to its main, new topic. It explicitly states that it will now describe Sai's nature and, more significantly, provide a detailed account of 'Baba's leaving his body.' This introduces the solemn and pivotal event of Sai Baba's Mahasamadhi, which the chapter then begins to narrate.