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After the Baudelaires find and lose the Quagmires, and narrowly escape death, they go to the auction house where Olaf and Esma are auctioning off an item containing the captive Quagmires.
The Squalor take the Baudelaires in because orphans are "in", and the Baudelaires suspect that the Quagmires are hidden somewhere in the Squalors' building. Meanwhile, Jacques recruits Olivia into VFD, and Olaf performs a musical number at Herring Houdini.
The village of VFD offers to become the Baudelaires' guardians, and the Baudelaires accept since they figure the town is tied to the VFD organization. Things look better when Jacques captures Olaf... but soon become grim again.
Misfortune bounces the Baudelaires between increasingly horrible places, bringing them closer to solving the mystery of their parents' shadowy past.