Warning: Official policy states that no spoiler tags should exist on recap pages. Read at your own risk.
After Naruto's canonical defeat of the traitor Mizuki, he finds Iruka unconscious due to a poisoned shuriken, and takes him to the hospital. With the remainder of the evening clear, he returns home to find that several of his shadow clones are still present, including some with shadow copies of the Scroll of Forbidden Seals; they spend the remainder of the night transcribing it all onto real paper. In the process, he also reads more about the shadow clone technique, and learns about its ability to share memories.
Without Iruka's field promotion, however, Naruto fails the academy again. Consulting with his many remaining clones, he hits upon the idea of using henge disguises to take the academy next year in multiple different identities, in the belief that the real Naruto faces unfair discrimination, and that with a different name and face, he could pass. The passing grade by a clone could then be presented to the Hokage as evidence that the real Naruto has the skills, and deserves to graduate.
To make this long-term infiltration possible, Naruto creates many more clones, and they use mass practice to learn another forbidden technique, allowing them to drain chakra; this would be harmful to flesh and blood ninja without the Akado bloodline, but will not harm shadow clones (who have no chakra coils), so the clones will be able to sustain themselves on environmental chakra and persist indefinitely. The clones also start exploring the village, gathering significant amounts of lost or discarded equipment, and classifying the forbidden techniques for possible use.
Upon leaving the hospital, Iruka visits Naruto and discovers his plans, but agrees to keep them secret, believing that the prank will help Naruto to focus and learn more, and that it might indeed remedy discrimination. He also obtains proof that some of the Academy teachers have deliberately sabotaged Naruto. He then visits the Hokage, reveals the proof, and gains his support for Naruto's prank in principle (including an unlimited authority to access funds and resources, and S-rank secrecy classification of the prank), without revealing all of the details.
The clone army comes across a large abandoned basement that they co-opt as a base of operations and training area, with Iruka helping to purchase it. They then choose identities for the two academy clones, Ariko (female) and Muremaru (male), and another two clones to attend the civilian school (just because they can), along with selecting some of the forbidden techniques to train in. Many of them are kamikaze techniques, but a particularly important one is a chakra shield that will allow the clones to take hits without being damaged (and bursting).
Ariko and Muremaru enter the Academy successfully; Ariko falls in with a group of other girls, the "Konoha Fashion Ninja", while Muremaru catches the eye of Hyojin Kiritori, Mizuki's replacement, who wants to train a successor for his family techniques, and who believes an orphan with no other ties (which is included in Muremaru's cover story) may be suitable. The "civilian" clones enter the village as the Gisei family, merchant traders; to support their story, as well as gathering information and resources, the clones begin multiplying and spreading to other villages and cities, using Naruto's unnaturally large chakra reserves to enable long-distance kawarimi replacements for fast movement. Unfortunately, their numbers soon push the limits of memory sharing, resulting in messages reaching only part of the swarm at once.
The equipment gathered by the clones includes a number of scrolls of various types, primarily storage seals, but also summoning scrolls. Naruto's first attempt at summoning results in a giant hostile crab, but after the clones defeat it, he is more successful the second time in summoning a rabbit. The rabbit boss, Nanabo-oh, meets with him and decides to grant him the rabbit summoning contract, of limited combat use but excellent for stealth and information gathering. Naruto also begins sword training with Miyamoto, a samurai rabbit, while the rabbit whom he first summoned, Ichibo, remains with him as a companion, guard, and advisor.
After the first Academy exam, Iruka discovers that Naruto's marks are being unfairly lowered, receiving zeroes for answers that are essentially the same as other students who received full marks. Reviewing past records, he is stunned to realise that Naruto should have passed the Academy in his first year. He consults Naruto about it, offering the chance to have the Hokage pass him immediately, but Naruto agrees to continue with the prank anyway, since he does still have a lot to learn (having become unmotivated and slacked off for years), and is getting more benefit this year due to his multiple identities. Iruka promises, however, to continue investigating.
The "adult" civilian clones begin establishing commercial contacts for their trading business, including Ichiraku Ramen, but run into difficulties with the Konoha Merchant Council, which is attempting to maintain a monopoly/protection racket, as well as encountering supply troubles due to their own inexperience. Despite the setbacks, Teuchi is happy with the clones' service, and introduces them to other business owners who do not pay for Council sponsorship.
After considerable effort and the loss of many clones, a group is able to cross the ocean to Wave Country, where they originally hoped to make merchant contacts, but they find it in dire straits due to Gato Corporation's oppression. In consultation with the real Naruto, they gather equipment and build up their numbers, then assault Gato's base and assassinate him before Zabuza and Haku can respond. Zabuza, upon learning about it, is displeased, but the clones pay him the amount that Gato owed him, and he leaves peacefully, including giving them a way to contact him in future.
As the chuunin exams approach, although he is not yet a genin and cannot enter, Naruto's own training includes working usage of a suicidal electrical technique (electrocuting both the user and target), a water blast that consumes all a clone's chakra (dispelling it), a tornado requiring multiple clones to manage, and a fire sphere that allows more and more energy to be stored in it until it bursts (either from being thrown, or from losing control). He is also given the opportunity to set a trap course for the Academy class, and draws the attention of a trap specialist jonin.
Upon learning that Hinata's training is being held back by conflict with her family, Naruto assigns clones to tutor her, first in the shadow clone, then in Matsuri techniques using chakrams to control the battlefield. He also teaches her a dangerous blinding technique that can cause permanent eye damage, as an emergency resort.
The merchant network then encounters its first sign of outright sabotage, when one of their warehouses is set on fire. Many of the goods are rescued, but the perpetrators are not caught. Teuchi informs the clones that this type of attack is seen frequently by those who do not pay the Council, although the exact timing and method are unpredictable. A few weeks later, a shipment is doused in knockout gas and stolen, but a transformed clone inside the goods is able to lead the other clones to it, exposing what appears to be a ROOT base; the clones set off an alarm during their attempts to escape, and the base is demolished and abandoned.
Naruto, Ariko, and Muremaru are all able to obtain seats for the chuunin exam tournament, where Hinata uses Naruto's techniques to score a surprise victory over her cousin. When Sand and Sound then launch their treacherous attack, the clone swarm mobilises, disguising themselves with clown-like outfits and makeup to protect their cover. The endless army of clones succeeds in banishing Orochimaru's snake summons, breaking the barrier around his duel with the Hokage (by absorbing it into their fire spheres), and forcing him to retreat, as well as dousing Gaara in water to disable his sand defence. They also capture the Sand and Sound armies outside the walls.
The Hokage then attempts to promote Naruto, Ariko, and Muremaru to genin for their actions during the invasion, and form them into Team One. Iruka collapses with laughter, but at his advice, Naruto reveals the prank; the Hokage is impressed and amused, but eventually decides to go ahead and form them into Team One anyway, under Ebisu-sensei. Naruto brings Sarutobi into the Naruto Council's planning sessions, and he in turn makes arrangements to introduce Jiraiya, so as to bring the clones' network up to scratch as a intelligence tool.
Unfortunately, Kiritori received mortal injuries during the invasion, and does not survive. Muremaru, having been taken on as his apprentice, is named as heir in his will and granted his surname, with the Hokage's approval.
The remaining clones in Wave form themselves into a supposed samurai band, the Torasen, as a cover for their ongoing peacekeeping activities. However, they unexpectedly come to recruit many of the surviving flesh-and-blood mercenaries present in Wave, and then receive an offer of employment in San no Kuni, protecting the last heir of the ruling family against Yakuza depredations. Upon arrival, they find the populace cowed and scared, but the Yakuza themselves are oddly quiet. The ruler turns out to be a young girl, whose family have all been killed or vanished.
While visiting her family's graves, the ruler disappears, leaving traces of a struggle. The clones make use of rabbit summons to track her, and find her being tortured by an illegitimate relative, who planned to eliminate her family and take over in revenge for not being recognized as an heir. After executing him, the clones track down Tsunade to treat the girl's injuries; Tsunade is suspicious of them, but accepts their offer of a billion ryo payment. She also recognizes them as clones, and demands answers when the real Naruto shows up. He shows her the Hokage's authorization for the prank, which surprises but mollifies her.
Team One's first C-rank mission is to deliver instructions to a local lawman and collect his report. However, upon reaching the target village, they are ambushed and abducted by a Mad Scientist working for Orochimaru. Despite breaking out of their cell and filling the lab with clones, Naruto is unable to overcome the scientist's cyborg body, but Jiraiya arrives in time to rescue him.
Sabotage attempts on the clones' network continue, and Ichiraku Ramen is burned to the ground by an arsonist — upon which its insurance provider refuses to pay up. The clones retaliate by infiltrating the insurer, stealing copies of its records, and using overwhelming numbers to search them for discrepancies; they find a pattern suggesting that the insurer was aware of the invasion in advance, and is deliberately cheating its customers not allied to the Konoha Merchant Council.
The Mist village rebels then contact the swarm, interested in hiring extra numbers to aid their takeover. Naruto consults with Jiraiya and the Hokage, deciding that a quick win by the rebels is likely the least bad outcome.
