The battle is over, everybody is back, and Natsu is recovering from the side-effects of eating Lacrima. Nothing to worry about though, he's eaten some strange energy elements before, like Laxus lightning when he was smaller. Turns out he might be eating electricity again soon.
Makarov is walking around with Mirajane, remembering the time when Laxus was small and happy, and they went to Fantasia festival together.
Good times. Jumping back to the present, it's time for Fantasia again! A festival that takes place once a year. Fairy Tail is holding a Miss Fairy Tail contest and everybody seems to be there. Contestants use magic to appeal. The contestants are:
Cana! Getting some Sake money.
Juvia! Transforming into a swimsuit with a living background of water.
Mirajane! Showing off some interesting transformation techniques.
Erza! Goth loli style.
Levi! With some magical words in background.
Bisca! Shooting hearts in four coins.
Lucy! Dancing with her stellar spirits, but wait... doesn't she look a bit petrified?
The curtain rises, so does everybody else. Foes have appeared. This time they're all from within Fairy Tail, it's Laxus, and his three 'bodyguards'.
Bixlow. He can move the souls of his dolls freely between any inanimate objects.
Evergreen. She can turn people to stone with just a glance.
Fried. He works with magic runes. Traps, barriers, stuff like that.
Then there's Laxus, the main enemy. He's starting up the Battle Of Fairy Tail, a battle where the last man standing wins. The stone statues are his hostages, anyone tries to not participate, they go up in smoke. Natsu is the only one getting fired up. "Did you forget how terrible you were beaten last time?" someone asks him, "That was when I was still a kid", he says. "That was last year!" the other guy replies. He attacks Laxus straight away and gets buzzed down just as quick.
Laxus and his bodyguards disappear and spread out over the city, the battleground, where they'll wait for the contests, not all of them at a time. There's a rune shield around the house, and Makarov can't get out. On the shield there's a scoreboard showing statistics on the battle. Makarov will have to stay here and watch, helpless. Natsu wakes up, ready to go again.
Huh, he can't get out either?! Next episode!