A child is found underground after surviving there for decades, and has with the ability to connect with people emotionally, especially agent Olivia Dunham. This turns out to be very useful to Olivia because the boy is able to give her clues to catch a killer from one of Olivia old cold cases. And just as Olivia begins to close in on the killer, the CIA tries to take the boy into their custody. Fearing for the boys safety, Olivia helps to spring him from the hospital and sends him to live with a family, and in return, the boy shows Olivia where she can catch her killer.
And where is the Observer? Well, if you didn't see him in this episode you should stop looking for him, period. When the boy is being taken to his new family, the Observer is watching from the sidewalk. The boy and him exchange looks of understanding, and the Observer walks away. Is the boy the next Observer? Or is they related in some way?