The episode moves between real time and flashbacks, both of which reveal much about Darla and the connection between Darla & Angel.
In flash back we see how she was turned by the master on her deathbed. You also see the strong connection between her and Angelus when she choses to go with Angelus versus stay with the master. You see the evolution of Darla & Angelus' evil family with Dru and Spike. There are flashbacks showing Darla's anger at the Gypsies for giving Angelus a soul and her hatred of Angelus for having a soul. With a soul, Angel is lost and tortured. After 100 years apart, Angelus finds Darla..wanting things to be as they were before. She gives him a chance to prove himself by killing an infant, he can't do it and runs out with the baby...realizing he cannot be like her as much as he wants to be with her.
In real-time, Angel puts a reluctant Cordelia, Wesley & Gunn to work helping him find Darla. Although Darla is initially with Lindsay, she seeks out Angel to help her with the pain she feels on being human and having a soul. Lindsay's feelings for Darla have grown and he also wants to protect her when he is removed from her case at Wolfram & Heart. Lindsay provides Angel information on where W&H have Darla so he can help Darla. This all appears to be a ploy by W&H who are setting this up...not so that Darla will turn evil, but because of the effect Angel will have on Darla.
There is major epiphany for Angel when he realizes that Darla seeks Angel not to help her come to terms with having a soul, but to turn her so she will lose it again. Darla believes she gave Angel a gift by turning him versus cursing him for life and wants him to do the same for her. When she realizes he will never do this, she runs out on him.
Both in the flashback and real-time the stories unfolding are about how Angel and Darla struggle with having a soul respectively. In the end of each story the choice they make is very different.