The typical format for a season arc would suggest that this episode begins the shift from the introductory phase of the season to the complication phase, when previously established plot elements begin to overlap and conflict. This is when the writers begin to show their cards: is this simply an episodic show with a few overarching elements, or is there a more cohesive plan?
The answer given in this episode is rather definitive. All the little mistakes and intersections with history from the first several episodes have come home to roost, and it is not going to be an easy fix. Jack's personal suspicions have led to something far less discreet and far more impersonal. Where Jack might have held back for Katie's sake, the FBI has no such compulsion. The final moment of this episode literally changes everything for the Vassar family.
This episode focuses more on the delicate period after Livia's apparent death, when Dan fell into a personal downward spiral and Katie was the one ready to help him climb back into the light. This kind of story needed time to develop, because now the audience is well-educated on the personal dynamics. Every moment of that fateful night has an effect on Dan and Livia as they struggle to preserve Dan's "present" existence, and that becomes one of the more important underlying conflicts.
The writers do play fast and loose with the idea that Dan can step into earlier moments in his life without anyone noticing the difference in age, but this has always been one of the conceits of the show. The entire cast seems to look exactly the same for more than a decade, but how else would it work on a television budget? Frankly, I think the show benefits from the attention given to character consistency over technical details.
This is the first time we've seen the time travel from Livia's point of view, which is a very nice touch, and it's also the longest period of time that Dan has been away from his family. Dan's absence plays directly into Jack's eventual confrontation with the FBI, and Livia gets to react to Dan's "present" lifestyle. This makes Livia a lot more interesting and versatile as a character, bringing her out of the background as a more active presence.
In the end, this is the episode where things escalate to a completely new level, and it does so through careful progression of established plot elements. This requires a talented and patient writing staff. Using the same episode to delve into a key moment in Dan's past history demonstrates how the deep the focus on the personal cost of this "time travel" can be. That creative decision has made this show the most mature and satisfying series to debut this season.