TITLE
The title is "A Tale of Two Cities" - in reference to the fact that there is a whole other "city" or neighborhood on the island that we knew nothing about. The Others have their own modern day civilization...they are not the "savages" that we first thought them to be. This is also the name of one of the most famous novels of all time.
DOWNTOWN
The episode starts out almost identical to the Season 2 opener. We have a new character (Juliet) who takes out a CD (last year it was Desmond taking out the record) and playing a song which has a very similar style to Desmond's song. We assume she is in a house back amongst civilization (we assume it's in someone's flashback) but are shocked to discover she is in a house right there on the island. Just like last season, Desmond was in the hatch with most 70s-era decor and amenities, which we assumed was a flashback until we discovered he was someone actually living in the hatch. Very similar openings. Also, notice that every season opener has taken place on the day of the crash, as seen from different perspectives (season 1, the survivors; season 2, desmond; season 3, the others). Very interesting. So this episode is actually the Others perspective of the plane crash, which took place nearly two months ago on the island.
We see Juliet is living in a suburbia-esque house with all modern amenities. With Desmond we heard the beeping of the computer, with Juliet we hear the beeping of the....oven! You would think she was a modern day Stepford Wife, baking her muffins in her cute little house. They are in this neighborhood full of houses, complete with a white picket gazebo at the end of the street. Modern decor, electricity, plumbing, etc. - the Others have their own little "neighborhood" right there on the island. (However when Michael spyed on them they were living in a "primitive" camp with huts and everything, which they obviously staged to get him to bring his friends back to start a "war" with them, since it appeared they were savages with no weapons or belongings.)
THE BOOK CLUB
The "book club" meeting opened a lot of doors and taught us some new things. We learn that Juliet picked her favorite book, a Stephen King book, and the other members are concerned that "Ben" would not like it. She bites back that she wasn't aware they had to conform, or that they no longer had their own free will. It is obvious she has some issues with Ben (who we later find out is our fake "Henry Gale").
The book they are reading is "Carrie" by Stephen King. (Carrie is about an outcasted girl with telekinetic powers who gets revenge on everyone she hates.) A little side note - if you remember back when Ben/Henry was captured in the hatch and Locke gives him a book to read, he says "What, you haven't got any Stephen King?"
You can see in the pictures below that Juliet is reading the hardcover copy (after all, she said it was her favorite book and likely owns the hard copy) where you can just make out the letters "C A R..." at the bottom. In the picture of the book club members, you can see that they are reading the paperback version, which has a different cover, as shown below.


The "earthquake" which hits during the book club meeting we have to assume is actually the effects of Desmond not entering the numbers in the hatch. Last season he informed the survivors that by not pushing the button on that day, the electromagnetic force on the island was set off and caused their plane to crash. Immediately after the plane crashes, Ben (Henry Gale) takes charge and sends Goodwin and Ethan off, tells them to live amongst them and "make up a story." He wants lists within three days. Then he looks at Juliet, looks down at her book, and says "I guess I'm not in the book club anymore?" There is obviously some animosity between them, and something about their past that I'm sure we will get into in future episodes about their previous relationship and why they no longer like eachother.
Also, did you notice at the book club meeting that the black woman sitting around with all of them is the same woman who we saw on the dock at the end of Season 2 when the Others captured Jack, Sawyer and Kate. Here she is at the dock (and inset she is shown from the book club meeting):

ETHAN WAS HIS REAL NAME
Even though Ben told him to make up a name and a story, "Ethan" gave his real name...and so did "Goodwin." It seems that Ben was the only one who actually made up a fake name to the survivors, which was "Henry Gale." Also, we see that Ethan is working on the plumbing at Juliet's house. So far we have seen him working on the plumbing as well as being a "doctor" in the maternity lab where Claire was taken? Just who is he exactly? Too bad he is dead now so we will probably never find out.
Now we are back in the present time, about two months after the day of the plane crash, when Jack, Kate and Sawyer have all been captured by the Others.
PRISONERS
When we see Jack, Sawyer and Kate, they each wake up in separate places. They also each have a bandaid on them from where their blood was taken. The Others did the same thing to Walt and Michael after capturing them. They seem very concerned with testing people's blood to find out something about them. Are they looking for some kind of disease (the "sickness") or are they doing it to see if they have the same special powers that Walt had? Whatever the case, they are very adament about WHO they want and who they don't want. Why did the only want Jack, Kate and Sawyer but no one else? Why also did they let them go when they came across them in the woods last season. They had the opportunity to capture them back then but didn't.
(JACK) - Jack wakes up in a glass room, with chains and a steel table, very reminiscent of psychological experiments and suggests he is being watched. He is being stubborn and won't allow Juliet to bring him food. She informs him that he was given "drugs" when he was captured which will make him hallucinate if he doesn't eat. He does in fact hallucinate as he hears the voice of his father saying "Let it Go" through the intercom. Juliet tells him that intercom hasn't worked in years. At other times when Jack has been stressed on the island, he has hallucinated about his father, hearing voices and seeing his image (remember when he was chasing him through the woods). He is still bent out of shape about his father's death. I think that what we learned about Jack in this episode (how he had obsessive behavior), it is becoming more clear that he was not necessarily distraught over losing his father, but moreso in the fact that he was unable to "fix" him.
(SAWYER) - Sawyer wakes up in an animal cage. There is also another young male kept in the cage across from him, who doesn't seem to want to talk. He manages to escape and lets Sawyer out too, telling him exactly where to run. This could have been a plot by the Others (just as they first used Ana Lucia to "pose" as a prisoner in order to get information from their captors). He gets caught by Juliet and is thrown back into the cage. He is told that the "bears" figured out how to get the food in two hours. This would imply they were testing animals' psychological behavior (how fast they learn certain behaviors like figuring out how to get food) and observing them. These were most likely the polar bears that the survivors saw in the woods, so that explains how the polar bears were on the island! Question is, why is Dharma testing animals? (polar bears, sharks??) The "aquarium" where Jack was kept is underground, under the water. He asks if there are sharks there, and Juliet says yes, in addition to dolphins. Remember last season when Sawyer and Jin were on the raft and spotted the shark (the one with the DHARMA logo on its tail) - now we know where it came from! (Also when Sawyer is in the cage, you can spot a mechanical shark with the dharma symbol on it off to the side of where he is being kept). They are treating and observing their captors just as they are the animals.
(KATE) - While Jack and Sawyer were treated like prisoners/animals, chained up in cages/jails, Kate was given a shower, new clothes, food, etc. - Ben told her "he wanted her to have something to hold onto, because the next two weeks are going to be very unpleasant." That was a very strange comment. Also, notice that when Tom (who now is not wearing the fake beard anymore) brings her to the cage across from Sawyer, he comments on her wrists and how roughed up they are. Something had to have happened for her wrists to get that cut up and bloody. She was just sitting pretty at the breakfast, her wrists would not have gotten so bloodied unless something happened. Did they start the "unpleasantness" before bringing her to the cage? Also I found it strange that they brought her to the same place where Sawyer was. Are they doing this as some kind of experiment putting them together again? They put each of them in separate places at first to keep them apart from one another, yet now they have brought two of them to the same place. Could they have brought her there because she said Sawyer's name first when asking about them. Ben/Henry responded with "Why Sawyer" when she used his name first?
TRUST ME, JACK
Juliet was sent in to talk to Jack. Ben/Henry is using her to get close to Jack. He wants Juliet to gain Jack's trust. Notice that when she first comes in, she asks him questions like what does he do for a living, if he was married, etc. (and we find out later that she already knows everything about him such as where he went to school and how he contested his divorce, plus she knows his ex-wife's name...things that he has never discussed with anyone on the island). He lies about the first two questions. Then she tells him he can trust her, and seems genuine about it. Then she asks why he was on the plane, and he tells her the truth about his dad, and she realizes that he is beginning to trust her (because she already knows the answers so she knows at that point he is finally telling her the truth). However he attacks her when she does come in with the food. He tries to open the door and she says they'll die if they open it. Ben/Henry shows up and Jack threatens to kill her. Ben either plays it very cool or he truly doesn't care if she dies. Notice that when Jack does open the door and the water rushes out, Ben closes the vault door locking Juliet out in the water with Jack, yet Ben manages to get back into the hatch safely. Once Jack is back in the glass cell, Ben/Henry uses Juliet once again to attempt to gain his trust. Juliet uses his weak points (his ex-wife, Sarah) to get in with him (Kind of like what Henry was doing with Locke, in the hatch). Ben/Henry is smart, he knows how to get to people. He also knows that Jack will never trust him, which is why he is using Juliet. He praises her at the end for a job well done, once she has gained his trust after she is able to get him to finally go sit against the wall. She seems disturbed and angry at Ben for "using" her to get to Jack. She seems like a genuine person, but we also see that she will use force (stunning Sawyer and knocking out Jack) when she has to. But it seems like at one time, she was a "good" person but Ben/Henry has turned her into something else. She made the comment to Jack about it doesn't matter anymore who they "were" but it matters who they are. Like she is a completely different person now. This quote is also similar to what Sarah told Jack, in the flashback, telling him that "it doesn't matter who he is, it just matters who you're not."
THE OTHERS
We also learn that the others are not necessarily the original Dharma group. Juliet acknowledges that they are "what's left over of them" and that "it was a long time ago." Maybe they are the children of the original Dharma group (who started it circa 1980, according to the film reel.) The Others would have been just children, or teenagers, back then. They could possibly be the children of the original group, or maybe THEY were taken too?
On another note, did you spot the WANTED poster in the jail (in Jack's flashback) with Kate's picture on it?