This song is about heroin use and what it will do to you in the end. Young wrote it about Danny Whitten, one of the original members of his band Crazy Horse. In 1971, Young went on tour and hired Crazy Horse and Nils Lofgren as backup.
During rehearsals, Whitten was so high on heroin that he couldn't even hold up his guitar. Young fired him, gave Whitten 50 bucks (for rehab) and a plane ticket back to Los Angeles. Upon reaching LA, Whitten overdosed on alcohol and Valium, which killed him.
Lyrics
I caught you knockin'
at my cellar door
I love you, baby,
can I have some more
Ooh, ooh, the damage done.
I hit the city and
I lost my band
I watched the needle
take another man
Gone, gone, the damage done.
I sing the song
because I love the man
I know that some
of you don't understand
Milk-blood
to keep from running out.
I've seen the needle
and the damage done
A little part of it in everyone
But every junkie's
like a settin' sun.
Neil Young