This is one of the two choice achievements in the game. You'll get this or 002 based on a choice at the start of the game.
Once you get the cocoon guy into the pushable cart on the circular tracks, you have to push him into the room with the saw blade machine, put him in it, and activate it. Then you'll get him out of the cocoon, and he'll follow you, so you can put a key on his hand and then have him help you progress.
The achievement should unlock once he starts following you.