What is the word for when someone is describing something as completely normal when it is not?
Solution 1:
It's called dramatic irony. From the Wikipedia entry for irony:
Dramatic irony . . . [produces] dramatic conflict in what one character relies or appears to rely upon, the contrary of which is known by observers (especially the audience; sometimes to other characters within the drama) to be true.
In this case, the observer (the reader) knows that the lottery is bizarre even though it is accepted as normal by the people in the story.