I don't know if I'm the only one, but I'm going to throw this out there: in Season 1 I guessed they were in purgatory or hell. Either way, that they were dead. I'm sure there were thousands of people guessing this but it makes me feel good that I was kind of, sort of, at least close. In terms of "what did we learn", this episode was probably the most revealing of any episode in the Lost series. No Flash Sideways here. It's all Richard and I'm quite sure that any fan of Lost has been wanting this episode for a long time.
The episode begins with Richard freaking out, once again, and telling Jack that he is dead, that they're all dead, and they're in hell. Wow. Right off the hop, we get a punch in the gut. And I totally believed it. I didn't think Richard was just saying it to mess with them, to throw them off his back. It made sense, in a way... other than the fact that they went home for 3 years or so. But, hey, that could've been "hell" too. At any rate, Richard goes off into the woods going somewhere, presumably to Locke, because Jacob was lying the whole time. At least, Richard thought so. Still, here, we have a slight feeling that, hey, maybe Jacob really IS the bad guy.
From here, we get a full on Flashback to Richard when he was "human" (i.e. not immortal). The story is uber-cool and I'll summarize it as quick as possible. His wife is dying and they are poor, so Richard goes off in the rain to find the doctor with a handful of change and a necklace that his wife took off her neck to barter for medicine. He finds the doctor, but the doctor throws the necklace away and laughs at the money Richard has offered. Richard, desperate, shoves the doctor, killing him, and races off with the medicine. Heartbreakingly, when Richard arrives home... his wife is dead. This was a poignant moment. Almost immediately, he is arrested for murdering the doctor. By the way, this is a LOOOOONG time ago. 1867!
Richard is taken to prison where he is reading an English bible. He tells the priest that he's learning because he and his wife were going to go to America. After pleading with the priest, he finds out that he cannot have his sin forgiven. He needs years of penance that he simply doesn't have because he's being put to death, oh, right away. Poor Richard. But wait... a man takes Richard away and saves him from death. He needs English-speaking people to go on a boat to America. But the boat crashes into the Egyptian statue (that is Jacob's home) on the island. Richard is trapped for days (his "owner" is killed by the Black Smoke) until he sees his wife (hallucinating?), but she, too, is killed by the Black Smoke. Finally, the Man in Black comes and frees Richard, and nurses him back to health.
He tells Richard that he can reunite him with his wife if he kills Jacob (sound familiar??? Sayid???). He says that Jacob is the devil and they are in hell. Richard goes to the broken statue with a dagger to kill Jacob (the same one that Linus used I think). Jacob gives Richard a full beatdown, then dumps him into the ocean thrice or so to prove that he's not already dead (proving this because Richard begs Jacob not to kill him). Jacob sits Richard down and explains that they aren't in hell, that the island is actually a cork that keeps hell from escaping and flowing across the world. He offers Richard a job and, in exchange, tells Richard that he may live forever (because he doesn't want to die and go to hell).
Richard goes back to the Man in Black and gives him a stone from Jacob (this is totally the inside joke that Locke shares with Sawyer in that cave with all the names written on the wall... I'm trying to remember what that joke was that Locke said when he threw a stone or something -- anyone else remember?). The Man in Black says that if he (Richard) changes his mind, it's never too late. NEVER.
The last scenes in this time are: one, Richard buries his wife's necklace (given to him by the Man in Black who said that he found it); and two, the Man in Black and Jacob share a moment where the Man in Black asks Jacob to just let him go. He then smashes the bottle that Jacob used to illustrate what the island was.
Present day, Richard arrives at the place where he buried the necklace and digs it up. He then calls out for Locke, saying that he wanted to change his mind. But before Locke can come, Hurley arrives and shares an incredible moment with Richard, relaying messages from his wife, who is standing beside Richard... what an awesome scene. And done so well, where they cut out Hurley's voice and made it like they were talking to each other. This reminded me of..... Ghost! With Swayze! Yeah... the couch scene where Demi is with Whoopi, but they put Swayze in Whoopi's place for the reunion. Yeah, Richard and his wife, that scene was AWESOME. Anyway, the end was basically his wife telling him, through Hurley, that he has to stop the Man in Black or else they are all doomed.
Then, Locke is shown in the distance looking out at the place Richard was in... he looks pissed.
And that's it... and now I think it's pretty clear that Jacob is the good guy and Locke is the bad guy. And Locke might be the devil. Jacob isn't God though. So who is Jacob to God? An angel maybe? A fallen angel even? I think this is so cool and it's just what Lost needed to really start the push to the end of the series. I can't wait for what's next.