What truly makes this episode stand out is that brilliant dream sequence (watch it first to see how awesome it is). The visual detail behind the shape shifting, the "fear" that each character talks about and the feeling of helplessness in Batman's eyes... feels like a Grateful Dead concert.
This scene took up an entire 2 minutes of the 20 minute episode. This leaves just 18 minutes to show the flashbacks, develop the villain's plans, show Batman's actions and a gazillion other things. Most dream sequences in this series are stunning (the Two Face one is especially touching). It is extended scenes like this that make us realize the pain that Batman goes through every night of his life and develop his character into one that we truly feel for.