This is the episode that sold me on the show.
Remember, "there's a war coming - a terrible war! There will be chaos, rivers of blood in the streets! I know it, I can see it coming!" The show certainly won't let us! I don't doubt your ability to see it coming when you're the one orchestrating it, Oswald. This is the main plot of the night, and with Robin Lord Taylor as the Penguin taking center stage the quality of the show shoots through the roof.
This is where Gotham shows its cards, and while everything doesn't make perfect sense we finally get confirmation of what the writers are driving at, while introducing several narratives which will stay with the show for the duration.
There's a lot happening in this episode if you're Jim Gordon, none of it good. He's running from the mob for sparing Oswald's life and Harvey wants to kill him. Then he's shot up by a professional hitman right at the precinct - the show's introduction of Victor Szasz, an instant fan favorite - and after that he's rescued by his own rival for Barbara's love, Montoya.
Later, he sends Barbara away so she won't be collateral damage and then Harvey meets up with him to forgive him since he figures he's just as screwed as Jim anyway. Finally, they mount a desperate "storm-the-castle" plan to go after Carmine and arrest him... which fails, because of course Barbara couldn't keep her nose out of it and ends up getting damselled. Then Carmine inexplicably spares their lives.
It sounds nonsensical, but it isn't, as we come to see in the final moments where Carmine has a meeting at his bird house - with Oswald.
See, Oswald has been working for Carmine all along. This is explained through a series of rather clever flashbacks. Oswald gambled his life on asking Carmine the favor to have Jim kill him, as he assumed Jim wouldn't have the heart to go through with it - and in return Oswald let Falcone in on Fish's plans of betrayal, and offered him his loyalty.
This is the reveal that ties everything together. Now Penguin's planted as a spy with Maroni, able to play the various factions against each other. Somehow Penguin aims to use Jim later in this war. Now the board is set.
This alone is enough to seal 'Penguin's Umbrella' as Gotham's strongest installment up to this point, but in fact, the most important and resonating part by far is set in the subplot, with Penguin and Carbone spearheading an attack on Nikolai's gang, on Maroni's orders - albeit manipulated by Oswald to give them.
The plan works out without a hitch and all the rival gangsters are dead in seconds, but Carbone isn't in the mood to let Oswald leave alive either, feeling threatened by his increasing influence over his boss.
The way the Penguin turns the tables on Carbone here is a thing of beauty - in short, he'd figured out that Carbone was a greedy bastard who never gave his henchmen a fair cut, and so Oswald simply paid them off. It's the introduction of the malicious exploitation of the sentimental cliché that "love conquers all."
This is something the show will return to time and time again - how the desires and the motivations of the central characters are what in turn create their fatal weaknesses. This is at the very center of Gotham's soul, and it's the driving force of perhaps the strongest scene of the first season, in which Oswald brutally executes his rival Carbone, then kisses him goodbye. Carbone loved money, and money killed him.
There's a lot more juicy stuff in this episode, be it Jim's first meeting with Victor, Fish's futile attempt to coerce Sal into giving up Oswald, the slowly evolving Agent Valentine plot with Liza, Jim's goodbye to Bruce or most importantly, Maroni ceding Indian Hill to Falcone in exchange for Oswald, but that's not really important right now.
What's important is up until this point, I wasn't sure what to make of Gotham. I knew it had a great cast, but the show hadn't delivered any real mind blowers. I liked most episodes well enough, but there wasn't a narrative yet to truly hook me.
Penguin's Umbrella changed that, puzzling all of the pieces of the previous installments together, proving to me that when Gotham is great, it isn't just great but truly special. It made me realize I would gladly slog through ten episodes of pedestrian fare just to be treated to one gem like this.