Does it help at all if I re-phrase and re-format it like this (pretend that the predicates are prefixed with 'on_' even though they aren't):

lambda sub {
    context $socket;
    on_writable sub {
        print $socket "GET $url HTTP/1.0\r\n\r\n";
        my $buf = '';
        on_readable sub {
            my $n = sysread( $socket, $buf, 1024, length($buf));
            return "read error:$!" unless defined $n;
            return $buf unless $n;
            again;
        }
    }
}
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When the lambda closure is executed, the 'on_writable' sets a callback to be executed when the $socket is writable. When the closure finishes, IO::Lambda sees that the socket is writable and executes the callback. That callback executes and it sets another callback for when the socket is readable. When the writable callback finishes, IO::Lambda sees that the socket is readable and executes the readable callback. That callback returns a value when all input is read, or else re-queues itself for the next time the socket is readable using again.

When all that is done, the value returned from running (er, 'wait'-ing for the lambda) is the value returned from the last callback to run -- in this case, the "return $buf".

The 'readable' part has to be set after the 'writable' part runs, otherwise, IO::Lambda could call them in any order, trying to read from the socket before the request is sent.

At least, that's how I think it works.

I agree that the nesting syntax is confusing and the way values are returned is likewise confusing.