Ah, utopia. Everyone is perky and helpful - or else. It turns out the Avatars were serious about doing away with all conflict. Anyone who causes conflict gets erased by the Avatars.
The sisters are blissful - no more demons! A normal life! Even Paige is happy. She's sad Kyle died, of course, but she knows he went "to a better place." Curiously, Phoebe hears her editor say the exact same thing about a "troubled" colleague who was "gone."
Leo is increasingly convinced something is not right. He gets confirmation from the unlikeliest source - Zankou. The demon whisks him to an Egyptian tomb, which reveals the price of utopia that the Avatars neglected to disclose. It also contains the recipe for the Anti-Avatar potion.
Leo is still suspicious of Zankou, so he goes to the Avatars' secret hideout. There, he sees the Avatars monitoring the world. When they see a person who causes conflict - yelling, fighting, or generally being disagreeable, they cause the person to simply disappear. Everyone who had witnessed the conflict happily went on their way, as if nothing weird had happened. Leo protests, but the Avatars explain that they must do this to maintain utopia. The needs of the many outweigh the needs of the few.
A whiny henchdemon presses Zankou for action. Are they just going to wait to be slaughtered? Zankou dismisses him. Leo orbs back to Zankou's tomb and confirms that he's going to help Zankou turn the world back - even though that means fighting demons again. Leo promises that once the world is back, he'll make it his mission to defeat evil. Zankou tells Leo the sisters are going to have to mix the anti-Avatar potion. Leo is skeptical - they wanted this world! Zankou tells him he's going to have to find some way to convince them things aren't right.
Leo finds Phoebe and orbs her over to Kyle's apartment. He gives her Kyle's snow globe, which triggers a vision of how Kyle actually died. Phoebe is shocked that the Avatars actually killed him, but she's convinced they had a reason. Leo decides to take drastic action. At the party, a trio of demons shimmers in and commences to zap the Manor. Leo fights them off and kills them, in a very conflict-heavy manner. He tells Phoebe to remember him, to go to the Book of Shadows to remember their losses. When she does, he says, she's got to contact Zankou. Then the Avatars erase him. Everyone else continues with the party, but Phoebe is troubled. When she goes to the attic and touches the book, she sees a vision of everyone who has died on their watch.
The boys are inconsolable, much to Piper's confusion. After all, daddy's gone to a better place! Phoebe tells her to listen to their grief, and realize what the Avatars had taken from them. After some resistance, Piper does. She's devastated that Leo is dead. Then they orb Paige over to Kyle's apartment, and get Paige to realize her depth of feeling for Kyle's death. All three sisters visit Zankou. He tells them the score, and they mix the potion. The sisters orb up to Avatar Central to demand the world be restored. The head Avatar finally acquiesces, but claims that someday humanity will be ready for their conflict-free world. They agree to turn back time to the point where the change took place. Much to Paige's dismay, they're not strong enough to turn back time to before Kyle was killed. Her boyfriend has to stay dead.
Just like before, the world wakes from its slumber. This time, however, everyone is pissed. Those arguments are music to the sisters' ears - it means everything has been restored. Back at the manor, Piper finds Leo alive again. Paige visits Kyle's apartment to mourn. Much to her surprise, Kyle appears - the Elders rewarded him for saving the world by making him a Whitelighter. Maybe they'll meet again someday, he says.