***Spoiler Alerts*** The episode jumped right into a flashback.
It’s 1864 at the Lockwood mansion. Katherine chooses Stefan to escort her to the Founder's Ball and Damon watches on the sidelines being jealous. We flash back to present day and Stefan enters the bar to find Elena and Damon playing pool. Damon looks at Stefan, says “Prepare to lose”, and kisses Elena. Flashback to 1864 with Katherine and Stefan, "Now you know how I feel, I love you, Stefan. We'll be together again. I promise."
Turns out it was all a nightmare orchestrated by Katherine. He wakes up in bed with Elena who is actually Katherine. She slides off the bed and says, “I’m getting better at this…”
Damon finds Elena studying at the grill and he accuses Elena of being a backstabber. She tells him that using his own manipulative tricks against him is not backstabbing. Damon has plans to attend Jenna’ barbeque with the intent of finding out if Mason is a werewolf.
Tyler grills Mason for more information on being a werewolf and he tells Tyler the only way to become a werewolf is if you “trigger the curse”, He won’t tell Tyler how to trigger the curse so Tyler taunts Mason about the moonstone
Katherine reads Stefan’s diary and mentions his interest in werewolves. Another flashback shows us that back in 1860 werewolves, not vampires were hunting humans. It was George Lockwood, a werewolf, that started “the council” and hunted vampires. Stefan asks Katherine why she came back to Mystic Falls and she repeats her claim that she returned because she loves Stefan. Stefan leans in toward Katherine implying that they’re going to kiss but Stefan stabs her in the back with a vial of vervain.
He locks her in the basement and she continues her story that in 1864, she struck a deal with George Lockwood to rid the town of vampires; she would turn in the others, and he would arrange for her secret escape. Katherine reveals that Stefan professed his love to her before he knew she was a vampire so she never compelled him to love her, it was real
At Jenna's barbeque, Mason tells Damon that he's heard great things about Damon, and in true Damon form responds, "Really? That's weird, 'cause I'm a dick." Mason clears the air and offers a truce. We see Damon grab a silver knife as he leaves.
Outside the house Damon breaches the truce with Mason by stabbing him. Mason tells Damon that the silver/werewolf thing is just a myth and that the truce is over. Later Tyler forces Mason that to trigger the curse and that you have to spill someone’s blood to trigger it
Back at Jenna’s barbeque, Elena is worried that she hasn't heard from Stefan. Caroline, who is being influenced by Katherine, upsets her by saying that vampire-human couples can't work out. When Elena tries to leave, Caroline offers to drive her, but not before purposely popping her tire. They wait on the side of the road for the tow truck and Elena gets frustrated and leaves Caroline with the tow truck driver.
Elena arrives at Stefan's but she doesn't realize that Katherine is in the house. Katherine had tricked Stefan into thinking that he was torturing her with vervain, but she had been sipping vervain for years to build up an immunity to the plant. She tells Stefan that she just wanted to spend time with him. She hears Elena upstairs and Katherine stabs him in the leg and takes off upstairs to introduce herself to Elena. Elena and Katherine has a short meeting where Katherine looks Elena up and down. She disappears as Stefan comes up from the basement.
Katherine confronts Caroline at the Mystic Grill and chastises her for failing to distract Elena. Caroline apologizes to Elena and it seems that she’s forgiven. Stefan and Elena fight about Katherine. Caroline and Damon are both eavesdropping as Elena storms out. It seems they have broken up. Back in her room Stefan is waiting for her and they think that their staged fight worked since both Caroline and Damon were listening.
Outside the grill Damon stumbles upon Katherine who tells him to not be a hero and try to kill the werewolves.
In another flashback, Katherine gives George the moonstone and threatens to kill him if anyone finds out that she escaped. Before leaving, she runs to Stefan and just as in Stefan's nightmare, she tells him, "I love you, Stefan. We'll be together again. I promise."