We begin with the Gaang hearing a story about air walkers, flying people who "laugh at gravity." Aang assumes he's talking about ancient tales of airbenders, but he's talking about more recent events. So the Gaang decides to head to the titular Northern Air Temple to check it out.
Once there, they see some people flying around on gliders. Katara assumes they're airbenders, but Aang says they're just gliding, not actually airbending. He also says that they have no "spirit." Whatever that's supposed to mean.
The fliers get close to Appa, but they don't ask who they are or why they're there. They just kinda hang out. Aang gets on his glider and he tries to show off with his airbending. That works, until their leader uses his flying chair to draw a frowning picture of Aang. He is not amused.
BTW, I'm pretty sure that hang-gliding doesn't work that way. These guys aren't supposed to be airbenders, but they're effectively doing the same kinds of things that Aang does with his glider.
After the horseplay, they all land and talk. The guy in the flying chair is Teo, and his legs don't work, hence the flying chair. Surprisingly, and thankfully, nobody says anything about this or tries to make a point of it.
They show Aang around, and Aang sees that the people who live here have built a lot of machinery and such into the existing structures. He sees it as desecrating the temple. Upon finding an untouched area, Aang is thankful. Irony ensues as the leader of these people bashes the wall down with a big rock to make a bathhouse. Aang gets pissed and blows one of their wall-smashers off the mountain, but the man, known only as the Machinist, is apologetic.
After the tour of the place, Aang is shown to a locked door just like the one from The Southern Air Temple. He refuses to open it, wanting to keep some part of the place safe.
Meanwhile, Sokka is off showing that he can be useful. He helps the Machinist develop a mechanism to detect natural gas leaks using rotten eggs.
After Aang, Katara and Teo engage in some bonding over a bit of gliding, Aang decides to open the locked door so Teo can see what's inside. But it isn't what Aang expected. The room is filled with various devices, several of them bearing the Fire Nation insignia.
The Machinist quickly appears and explains what's been going on. Sometime after they arrived on the mountain, the Fire Nation showed up and threatened to destroy the place. To keep them from doing so, he agreed to design and build weapons for them. Teo is disappointed in his father for this. Aang asks when the Fire Nation is going to come by for their next pickup, and the Machinist says it will be soon.
Wow, what a coincidence. How often do they drop by anyway? Every 6 months would make the most sense, but the episode never says.
Teo and Aang hang around for the meeting. Aang gets pissed off and tells the Fire Nation guy, War Minister Qin, that they're not getting anything more from these people. Then Aang just lets Qin go. Wow, really Aang? You don't capture a Fire Nation War Minister? One who's going to go back and tell everyone to invade?
Also, the attack happens pretty much the next day or so. Does the Minister come every few months with an army on the off chance that a guy he's been dealing with for well over a decade now is going to suddenly reneg? Sure, that just happened (of a sort), but it couldn't have been something he was expecting.
Anyway, the Gaang has to mount a defense, and the Machinist offers to help. Since Aang left him with very few options. Sokka helps finish the invention of the first hot-air balloon, which impresses Katara. But not me; we're talking about the Machinist, a guy who is capable of inventing steam-powered tanks that can work when upside down. And yet, he can't realize that putting a removable cap on the top of the balloon will let you control it. Still, it's a nice character moment for Sokka, helping further his transition away from his early Season 1 persona into someone who actually has value.
The fight starts, and the fliers are initially doing well. Until the aforementioned tanks show up. These tanks are capable of firing chains that they can use to pull themselves up cliffs. I'm sure there are steam boilers that can work when turned 90 degrees, while still providing enough energy to pull several tons up a vertical cliff. Or when inverted.
Anyway, Teo mentions something about a water-based counterbalancing system that the Machinist invented. Katara seems to ignore this, instead simply waterbending the snow around them to take out two tanks single-handedly with heretofore-unseen skills of waterbending. After doing so, she pretty much decides that she's done and doesn't bother doing anything for the rest of the fight. No really; she just stands there while Aang deflects fireballs (the Fire Nation has tanks that can climb vertical cliffs, but no gunpowder. Because they would win easily if they did).
Sokka and the Machinist show up in their new war balloon. The Fire Nation soldiers ignore them because the balloon, originally intended as a gift to them, has the Fire Nation insignia. They drop three large bags of gooey substance on the tanks, but it's not enough and they're out of ammo. Quite randomly, Sokka detects the smell of rotten eggs from 50 feet away, and realizes that it's coming from a crack. He drops their source of fire down into the crack.
This results in a massive explosion that looks like it should be able to take out the entire mountain. But somehow, it only takes out the part of the mountain the Fire Nation is on. Since Sokka threw away their fire, Sokka and the Machinist have to be rescued from their war balloon by Aang.
In pat TV fashion, Aang is now 100% over the changes to the temple. He's happy that they made the temple their home and protect it. Sokka then says, "As long as we've got the skies, we'll have the Fire Nation on the run!"
What have you done, Sokka? What have you done? Thanks to Sokka, we immediately cut to War Minister Qin speaking the page quote as his people salvage the war balloon. Good job, Sokka; thanks to you, I can't give Aunt Wu crap for you inventing war balloons, because it's going to come back and bite you in a couple of seasons.
This is a very strange episode. The initial issue, between Aang and the settlers, is handled in a very odd fashion. Usually, in TV or movies, it's clear that the technological guys are evil, corrupting and blighting the world around them. Whereas people like the nature-loving Aang are clearly in the right, wanting these people to stop desecrating the sacred temple of his people, even though they've been dead for a hundred years.
That doesn't happen here. And I'm somewhat happy about that; it's a far cry from Aang's aangst over the destruction of a single forest. But the problem is that, by treating each side with respect... there's no conflict. Aang's slightly pissy, but Teo and the Machinist are very reasonable. It's clear that they aren't breaking things just to break them, and they've taken to gliding in true airbender style (though supposedly without the bending).
Even when the Machinist is revealed as a maker of Fire Nation weapons, it's clear that he's doing it to save his people from being wiped out. He doesn't want to; he simply had no choice. And nobody really hates him for it; Teo is disappointed, but even that is muted by understanding.
What this means is that 2/3rds of this episode is... empty. There's no conflict at all. People speak respectfully, they disagree sometimes, and that's the end of it. And while that may be how we would like things to go in real life more often, it's not really conducive to quality entertainment. Because of this, we are left with a very neutral episode.
The things that elevate this episode above average are Sokka and the ending. Sokka really comes into his full growth as a character in this episode. The husk of early-season Sokka is finally shed, and he attains the general characterization that we will see throughout the rest of the series. No more grousing about food or whatnot, and he's not the butt of the joke (except for the irony of the ending). Speaking of which, the episode's jokes are actually funny, like when Katara is gliding around and swallows a bug mid-sentence.
Mechanist: Yes.
Sokka: I hate this world and everyone in it.