This episode is about how Freddy first became a dream killer.
It starts out in the courtroom as Freddy is released on a technicality and disappears in the town. The townspeople form a lynch mob to go hunt him down, while the Springwood Sheriff is looking out for his twin teenage daughters who were the last victims that Freddy was after before he was arrested. Meanwhile Freddy is caught in the boiler room and laughs maniacally as the Sheriff pours gasoline all over Freddy and sets him on fire.