The story describes a woman driven to madness as a result of the Victorian “rest-cure,” a prescribed period of inactivity originated by Dr. Weir Mitchell, which was thought to cure "hysteria" in women.
Charlotte Perkins Gilman herself was once prescribed this “cure” by Dr. Mitchell, was driven to near madness by it, and later wrote “The Yellow Wallpaper” to protest this treatment of women like herself. She even sent a copy of the story to Dr. Mitchell, and although he never replied to her personally, he reportedly changed his treatment of hysteria after reading the story.
So the story is at once a work of early feminist literature (or, as Ms. Gilman called it, "propaganda"), an act of early feminist protest, and an early feminist victory. A Victorian Victory, even.