Daniel tells Jack that his perception of how long the helicopter has been gone, may not be how long the helicopter has actually been gone.
Desmond jumps back and forth between 1996, when he's in the Royal Scots Regiment, and 2004, when he's on the freighter. In 2004, Desmond doesn't recognize anyone or know what he's doing there. The only thing he recognizes is Penny in a picture he has.
Desmond is taken to sick bay, where he meets George Minkowski, who is tied to a bed. George is experiencing the same kind of time jumping as Desmond.
Frank and Sayid are able to get the phone to Desmond and Daniel finds out what is going on with Desmond, then sends him to find the 1996 Daniel.
The 1996 Daniel tells Desmond that he has to find a constant, something in 1996 and 2004 to anchor him. Desmond chooses Penny as his constant, but is unable to find her in 1996. He finds Charles Widmore at an auction where Charles bids on and wins the journal of the first mate of the Black Rock. Charles gives Desmond Penny's address.
Desmond finds Penny and she wants nothing to do with him. He convinces her to give him her phone number and tells her not to change it and he will call her in eight years.
In 2004, Desmond calls Penny and they talk and profess their love for each other. This brings Desmond back to remembering 2004.
Daniel flips through his journal and finds a note that says that if anything goes wrong, Desmond Hume will be his constant.