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This is the episode that changes everything. It is the first real piece of unique mythology that we get from the show and, in light of later seasons, the one that introduces the real adversaries in the war that Walter and William were preparing for. Probably. I've always found it extremely convenient that they dropped hints about both the observers and the alternate universe being potential adversaries, but I guess that's what good writing is about: not necessarily having a rigid plot, but being able to tie up loose ends with panache.
More interesting things that this episode hints at: that elusive previous Fringe Team, which was apparently also under Broyles' authority. By the information given to Olivia, Fringe Investigations seem to go as far back as the 70 or 80, which lines up fairly well with all the work Walter and William were doing. There is also the issue of William Bell as a personification of the Walter-that-was, since he very rarely shows up but always seems to be the one in pro of disregarding ethics and laws, even if the case can be made for it being due to Walter was the Unreliable Narrator in that it is always him who is telling these stories, and William is always his scapegoat.

Writer(s): Jeff Pinkner; JJ Abrams
Director: Paul Edwards
Originally Aired: September 30, 2008
Synopsis:
The appearance of mysterious cylinder triggers odd behavior and surprising revelations. A bald, eyebrowless man who has been seen in previous episodes speaks for the first time. Walter tells Peter the truth about a near-fatal experience from Peter's childhood.
Most Memorable Quote(s):
"Open your mind, son, or someone may open it for you." - Walter Bishop
Links:
Transcript
Golden Spiral Media Podcast for Episodes 101-104
IGN Review
More interesting things that this episode hints at: that elusive previous Fringe Team, which was apparently also under Broyles' authority. By the information given to Olivia, Fringe Investigations seem to go as far back as the 70 or 80, which lines up fairly well with all the work Walter and William were doing. There is also the issue of William Bell as a personification of the Walter-that-was, since he very rarely shows up but always seems to be the one in pro of disregarding ethics and laws, even if the case can be made for it being due to Walter was the Unreliable Narrator in that it is always him who is telling these stories, and William is always his scapegoat.

Writer(s): Jeff Pinkner; JJ Abrams
Director: Paul Edwards
Originally Aired: September 30, 2008
Synopsis:
The appearance of mysterious cylinder triggers odd behavior and surprising revelations. A bald, eyebrowless man who has been seen in previous episodes speaks for the first time. Walter tells Peter the truth about a near-fatal experience from Peter's childhood.
Most Memorable Quote(s):
"Open your mind, son, or someone may open it for you." - Walter Bishop
"[About The Observer] It took us a year to spot him. You did it in three weeks." - Philip Broyles
Links:
Transcript
Golden Spiral Media Podcast for Episodes 101-104
IGN Review