(Catch up on previous episodes here)
In the wake of Amon's surprise attack at the pro bending championships, the arena has been shut down, forcing Mako and Bolin to find a new home. They take Asami up on her invitation to move into her father's mansion. Meanwhile, Chief Beifong raids one of Republic City's largest corporations and discovers they have been manufacturing the electrified gloves for the equalists.
While spending the day at the Sato mansion with her friends, Korra grows to like Asami during a great Speed Racer inspired scene where they are racing cars on her father's test track. Things seem to be going well, until Korra overhears Mr. Sato on the phone and suspects of him working with the equalists. It seems he may have framed his rival, and that he is the real manufacturer of the weapons.
Korra goes to Tenzin and Beifong with this information, and as it turns out, Mr. Sato has motivation for supporting the equalist cause. It is revealed that firebending triads were responsible for his wife's death. Still, Mr. Sato denies the allegations, and even allows the police to search all his warehouses. When no evidence turns up, the investigation seems to be a dead end, until an informant reveals that there is a secret factory under the Sato estate.
Despite the riff it causes between her and her friends, Korra pursues the lead, and along with Tenzin and Beifong discover that there is indeed a factory where Sato has been producing robotic suits for Amon, made of platinum and impervious to metal bending. The whole thing turns out to be a trap. Korra and the others are only able to escape thanks to Asami, who chooses her friends over the wickedness of her father.
The fallout is swift in episode eight. Beifong resigns in order to pursue Amon on her own terms, and Tarrlok uses the entire situation to gain more power in the city. The political intrigue is extremely well done. Tarrlok institutes measures to curb the rights of non-benders with restrictive laws that mirror ones that have been enacted in our own society to fight terrorists; holding them indefinitely and without proof. His actions put him even further at odds with Korra.
Korra is slowly beginning to understand her role as the Avatar, learning to listen to her visions and realizing her job is to stick up for those who can't stick up for themselves. This leads to a showdown with Tarrlok after he arrests her friends. Fueled by her new confidence, she nearly defeats him. Cornered, Tarrlok is forced to reveal himself as a devious blood bender. In flashbacks, we learn Aang had to face similar struggle, but it isn't yet clear what the connection is. What is clear by the end of the episode is that the new Avatar is in a lot of danger as she is now Tarrlok's prisoner.
(Sidenote: Episode 7 included two of the funniest Airbender Kids moments)