The Lovely Bones strongly suggests that when we go to the afterlife, we bring along all our Earthly traits, and we continue to grow and change after we die.

Susie isn't in to the whole death thing whatsoever when she first gets to heaven, but she gets used to it one she's realizes how cool it is.

We don't know exactly how they knew this was Susie's elbow, or what shape it was in when they found it. It comes to symbolize Susie's death and to stand in for the rest of her bones, which are never found.