Scooby is having nightmares with "the dancing man", and Annunaki Nova. When suddenly his dreams get worse he runs into the once defeated Freak of Crystal Cove—now more scary than ever.
The next morning, Scooby wakes up, and panics to the gang about his dream. The gang shows Scooby a book about "supernatural curses", with a picture of the author on the back; Professor Horatio Kharon, university hypno-therapist, who studied the supernatural. Scooby recognizes him as "the dancing man" in his dreams.
Later on, they drove down to see Prof. Kharon to see if he could shed some light on Scooby's nightmares. Velma thinks the idea is crazy; she never believed in real monsters. When the gang arrived at Prof. Kharon's mansion, he first yelled at them to leave. But when Scooby told him that he was in his nightmares, he let them come in.
When they met, the gang saw that the professor had pictures of "the Monstrous Freak" on his walls, seeing them in his nightmares. The professor kept yelling at them, but then calmed down. He lost "the best part of him", which is the man Scooby sees in his dreams, dancing. Then, he told the gang about "the Sitting room", a waiting room between time, space, and different dimensions. He said that they would find the answers "to whatever it is they need to find" there. Hypnosis was the way to enter the Sitting room, that's how Horatio's "best part" got trapped there. He also warned Scooby that if "the Monstrous Freak" got him in his dreams, he will never wake up. He pointed out to the gang that they need to find the monster's "true identity" and it will be defeated.
The professor had the gang lie down on the floor, in a circle. He gave Velma a talisman to give to his "other self" when time was up. He gave them one hour to confront the Monstrous Freak, and after that, there was no coming back. He pressed a button on his desk, and a big hypno-wheel, lowered from the ceiling, over the gang, spinning. Slowly, the gang were hypnotized into a deep sleep. Then, Prof. Kharon started counting the hour . . .
The next minute, the gang found themselves in the Sitting room, surrounded by the "best parts" of other people, trapped there by the cursed treasure. They looked like the old Mystery Inc, Ed Machine, and ex-Mayor Jones. Fred thought that "Mayor Dad" has something to do with the Monstrous Freak, being the one they unmasked. The ex-Mayor Jones figure came to life, and told Fred that the Monstrous Freak in Scooby's nightmares inspired his Freak of Crystal Cove idea. Suddenly, the Monstrous Freak appeared, and the gang scattered in different directions. Fred then finds himself in the old west; before him stand the Mystery Gang: four mystery solving cowgirls, and their bull, Tiny, who are using one of the keys, the mortar bowl. Shaggy and Scooby find their way to Spanish Crystal Cove, where they found Alianza Misterio, the mystery solving banditos, and their skunk, El Fuchi. Using the conquistador's helmet. Velma finds the Mystery Fellowship (the Darrow family) using the flintlock. Daphne, appears back at the Burlington Library where the Benevolent Lodge of Mystery had the sailcloth, the 4th key.
Later, the Freak caught up with all of them. The gang got chased to an area where a temple stood; the Freak got weakened by the light (atop the temple), and ran off. The gang met Annunaki Nova, and Velma had a nervous breakdown over things not making sense to her. Annunaki Nova told the gang about the very first group of mystery solvers (immortalized at the top of the temple), the Hunters of Secrets. They attempted to destroy the crystal sarcophagus, and the Evil Entity inside. But were stopped when the conquistadors took it, believing it to be treasure. And it was the Hunters of Secrets' intentions, that led to the other mystery solving groups; including the current Mystery Incorporated.
He doesn't want the gang to leave the sitting room because they would destroy the evil Annunaki within the treasure which would free him and his men from the curse that keeps them trapped there, but they would rather stay and pay for their past acts.
The sitting room that Scooby first went to in Stand and Deliver, is a junction between space, time and different dimensions. It can capture the best part of people. Most of the people from Crystal Cove have had their best part taken because of the cursed treasure.
The connection between Professor Kharon first seen in The Devouring and the "dancing man" first seen in Stand and Deliver is established - they're the same person. The "dancing man" is the best part of him trapped from the time he spent in the sitting room.
The Hunters of Secrets were a Mayan group of friends who were first afflicted by the and were going to destroy the monster rather than release it, but were stopped when the Spanish conquistadors stole the sarcophagus because they thought it was a great treasure.
The theory about the best parts of people trapped 'in between worlds' is a spoof of the theory of the doppelgänger (evil doubles of people in the Black Lodge) from Twin Peaks.
The Miskatonic University that Horatio Kharon is a professor at is a reference to the location of the same name from H. P. Lovecraft's Cthulhu Mythos.
Interestingly, Fred was more interested in finding redemption from the "best part" of his fake dad and not his real parents. From his experience with his parents it turned out that the ex-mayor turned to be a better parent all along, but Brad and Judy were victims too who should've also been given the benefit of the doubt.
"I have spent my whole life believing in facts, in clues, but we're in some dreamworld fighting a nightmare monster! It doesn't make sense! I want it to make sense! (sobbing) I NEED IT TO MAKE SENSE! It's ok. It's alright, Velma. Sometimes you have to not think. Sometimes you need to feel your way in order for things to make sense."
— Velma and Daphne '
"I really, really hate always being the bait! Me too, it is so unfair!"
— Shaggy and Scooby-Doo '
"No! Do you not see?! If I you destroy the Entity, then myself and my men will be set free from this endless curse! We should never be set free! We must pay for all the horrible atrocities we committed, while in service to the Entity!"
— El Aguirre explaining to the gang '