Of any episode in the series, this one always felt the most "Crime Investigation procedural" to me. Lots of Police boots on the ground, investigating Jacques's Apartment and then his Cabin, forensics, clues, talking to that darn log and shots like this:
"Red drapes Harry, from my dream."
As the title indicates this is the episode where the majority of the code from Cooper's dream is unravelled by the investigation. Red Drapes from Jacques's cabin, Waldo the Myna bird, music and the place where Laura was tied up the first time. ("Sometimes my arms bend back")
It also has our amateur sleuths making discoveries, Maddie finds Laura's tapes to Jacoby, Audrey goes for a job (Well blackmails the manager to give her the job she wants) at the perfume counter at Horne's department store and then later spies on Catherine and Ben getting intimate and discussing One Eyed Jacks.
And more shots like this:
The investigation also brings them to the Log Lady, in her own Cabin. Cooper is able to talk to the Log and obtain it's cryptic testimony. The Scene at the Log Lady's cabin also helps explain who she is and in part why she carries her Log. The connection to fire is made again, "Fire is the devil hiding like a coward in the smoke". In the universe of twin peaks fire is increasingly seen as a metaphor for evil, or maybe just malicious destruction? The phrase "Fire Walk with me" is at the murder site, is spoken by MIKE and was even the Tattoo MIKE has on the arm he removes to expunge his evil. (In the full version of the BOB/MIKE dream you can see BOB as the words on his arm as well) Fire killed the Log Lady's husband, Leo is about to set fire to the Mill to further Ben's plans. (Which in the end involves and attempt to kill both Shelley and Catherine) This building symbolism is very much the style of the program and continues even into the movie "Fire walk with me", with the dwarf (dressed in his Red suit) calling himself "The Arm" in reference to MIKE. (The part of MIKE that had "Fire walk with me" tattooed on him)
The Log Lady is possibly the most iconic inhabitant of the town on Twin Peaks, beating Cooper and the Giant by only the virtue that both come from outside the town. (The Giant is from "Another place") She is a very old idea of Lynch's, one that he had an idea for a TV series based around when he was shooting Eraserhead. "I'll Test My Log with Every Branch of Knowledge" was the original title and it was to feature Margaret Lanterman in basically the same role as she plays here.
The episode also includes a few other iconic scenes, Leland breaking down as he dances to Pennsylvania 6-5000 and Cooper coming across Audrey in his bed. (Which we close the episode with) It's a very strong episode that probably involves the most plot development since the Pilot and sets us up for the ride to the Season cliffhanger.