The title of Avatar: The Last Airbender season 2 episode 4, "The Water Falls, the Stones Emerge," is a reference to earthbending philosophy that says water falls freely, stones emerge slowly and with resistance, and things start happening in the vein of that contrast here.
In Ba Sing Se, Sai is still missing as we saw in the final moments of episode 3, Long Feng is starting to feel more and more off. And Aang, who has been unusually comfortable here, is about to have a difficult few hours. It's also the busiest episode of the season so far. Five or six storylines run in parallel and not all of them get equal space. Zuko and Iroh's thread in particular feels compressed, but the episode manages its pieces well enough that nothing feels abandoned. What carries it is the slow, satisfying process of information clicking into place and things the audience has suspected for two episodes finally get confirmed.
The episode's most awesome beat is that Katara and Zuko are both operating in disguise in the same place at the same time, on the same side, without knowing it. Fans of the original animated series will love this particular gift from the show that we always wanted.

Episode 4 recap
Aang has been training with Toph every morning and spending time with Long Feng, working on the problem of reaching the Earth King. Katara has been slipping out at night as the Painted Lady, bringing medicine and help to people in the Lower Ring who need it. And Zuko, it turns out, has been doing something similar operating under the Blue Spirit mask he first used in season 1, quietly defending people he has no obligation to help.
Toph's earthbending lessons push Aang toward subtlety, like bending things at a distance and feeling the world through vibration rather than line of sight. She blindfolds him to force it. Their progress is slow. Sokka, meanwhile, has been trying to build a telescope in Sai's absence and runs into Professor Zei, who floats the idea of searching for the Spirit Library. He also mentions almost in passing that people who ask difficult questions in Ba Sing Se have a history of disappearing, taken by the Dai Li. The pieces aren't hard to put together.
Long Feng tells Aang that Sai was arrested because he had connections to Fire Nation spies back in Omashu, a partial truth to keep Aang from asking harder questions. Aang is uneasy but not yet ready to break with Long Feng. That changes when General Sung contacts him. Sung explains what the audience has suspected: Long Feng is the head of the Dai Li. He controls what the king knows, which means he effectively controls the city. When Aang confronts Long Feng directly afterward, Long Feng confirms nothing and deflects everything only offering to see Aang in the morning. Then a different Joo Dee appears, identical in manner to the first. The show doesn't explain this.
Toph has been sneaking out at night as well, and Katara knows but hasn't pushed. When Sokka follows her, he finds her at a haiku night in the Lower Ring, a lovely small detail, that Toph gravitates toward something that rewards listening over looking. The two of them end up trading verses in front of a delighted audience. What comes out afterward, in the dark outside, is that Toph has been blackmailed by a man named Lau Wong who has documents proving the Beifong family has been selling materials to a Fire Nation weapons factory. She bought them to keep it quiet. She tells Sokka, who promises to keep her secret.

The episode's most interesting thread involves the Fire Nation refugee community living in Ba Sing Se's Lower Ring. Jet, still bitter, tries to recruit Zuko to raid the camp, blaming them for a neighbourhood fire. Zuko refuses and instead goes to warn the community's leader, a former officer named Jeong Jeong who abandoned the army rather than keep sending men to die. That night, when Jet leads a mob to the camp, both Zuko (as the Blue Spirit) and Katara (as the Painted Lady) are there defending it, neither knowing the other is present.
Iroh, this episode, is carrying something specific. It's the anniversary of Lu Ten's death and the weight of it is visible throughout his scenes. When he encounters a man in the Lower Ring who is close to doing something he can't take back, Iroh sits with him. Offers tea. Mentions there's work at the shop. It is a small but moving act and the episode treats it as such, which is exactly right.
Outside the walls, Suki has been scouting General Tran's Fire Nation camp and is captured by Azula. Azula takes the Kyoshi Warrior uniforms and makeup, sends Tran ahead as a prisoner to Ba Sing Se, a gift for Long Feng and a way to gather intelligence, and then walks through the city gates herself with Mai and Ty Lee, all three of them dressed as Kyoshi Warriors.

Episode 4 review
The Long Feng reveal has been coming from the moment the gang met him, really. Aang is left slightly winded and the audience feels the specific discomfort of watching someone realize they've been managed. The detail of Joo Dee being replaced by a different person with the same manner, the same lines, is another of the story's creepy beats.
General Sung works better in this episode than she did at the party, where she was mostly a device for delivering the "there is no war in Ba Sing Se" line. Her telling Aang that Suki passed on the Avatar's words about people helping each other is a nice touch connecting threads across episodes.
I cannot talk enough about the Zuko and Katara parallel and it is the episode's best structural idea and one of the season's most quietly effective moments. The show just lets them be there together without knowing it and trusts us to feel the texture of that. Jeong Jeong is also worth noting as a new character, a former Fire Nation officer who walked away from the war now living in a fenced-in community in the city he fled to. He has one scene and it's good.
Iroh's anniversary scene is handled with the same restraint the show has consistently brought to him. Paul Sun-Hyung Lee does more with a cup of tea than many would with monologues and we cannot help but feel for him.
The Toph and Sokka haiku exchange is genuinely charming. It's a lighter scene in an episode that is otherwise progressively darkening, and it earns its place by letting characters be funny without undercutting what they're actually saying to each other.
Azula arriving in Kyoshi Warrior disguise is the season's most confident move so far. The detail that she captured Suki first, took the uniforms, sent Tran ahead as a useful piece of intelligence, then simply walked in, is more interesting than a straightforward infiltration. That's very her and we can't wait to find out what happens next.
