This is in my opinion one of the very best episodes of Frasier, and also one of the episodes which shows it's unique style.
Daphne returns from her fat camp and she and Niles wind up arguing. She claims he hasn't been able to see her for who she really is; all he sees is the image of the woman he's adored for seven years. Niles on the other hand thinks she is completely wrong and that it's her new psychiatrist that has put ideas into her head.
Frasier comes to see Niles and takes us on a virtual tour down memory lane to make his point. In a masterful way season 8 Niles and season 8 Frasier appear as spectators in three previous episodes, commenting on the scenes and analyzing them.
It is an absolutely brilliant episode which can be watched time and time again, and which brings both Niles and the viewers to the place where the Niles/Daphne romance can begin for real. An episode like this was needed after all these years of Niles pining.