Back in London, David tells Miss Betsey what is going on at the Wickfields' while she paces back and forth in distress. David then composes a letter to Dora's aunts while Miss Betsey looks at him anxiously and "thoughtfully." The next morning, Miss Betsey reads and approves his letter, and David sends it.
Miss Betsey's anxiety in this scene stems both from her concern for the Wickfields and her longstanding belief that David would be better off marrying Agnes than Dora. Nevertheless, she helps him in his courtship of Dora, allowing him to make his own decisions and learn from them.
One day as David is walking home from Doctor Strong's, he notices a woman who seems familiar crossing the road in front of him near St. Martin's Church. He can't place her, but is soon distracted by the appearance of a man on the church steps, who turns out to be Mr. Peggotty. This in turn causes David to recognize the woman he had seen as Martha Endell.
Given that it's written as a memoir, it's not surprising that David Copperfield grapples with how memory actually works. Here, for instance, David recognizes Martha through an association of ideas—presumably, the fact that he saw both her and Peggotty in Yarmouth.
David and Mr. Peggotty shake hands, too overwhelmed at first to speak. Eventually, Mr. Peggotty says that he was thinking of visiting David before he sets off traveling again. David asks where Mr. Peggotty is staying and then takes him to a public-house (pub) near an inn called the Golden Cross—the same inn where David had first reconnected with Steerforth.
For David, places often become synonymous with the experiences he has there. In this case, he associates the tavern with Mr. Peggotty's "misfortune," which makes it a symbolically fitting place for him to meet with David now.
Once they arrive at the public-house, David studies Mr. Peggotty and finds that he looks older but determined and "very strong." Mr. Peggotty explains that he has looked for little Em'ly in many places but heard very little. Remembering how fascinated Emily used to be by the sea and the "coasts where the sea got to be dark blue, and to lay a shining," he first went to France. He also suspected Steerforth talked to Emily about the pleasures of life abroad and how she could be a lady there. Once in France, Mr. Peggotty traveled from town to town, mostly on foot, asking for news of Emily. Eventually, word spread ahead of him and many poor townspeople would welcome him and give him a place to stay.
The idea that Emily would become a lady abroad raises the question of what exactly determines class status. Although it's possible Steerforth promised to marry little Em'ly once they left England, it's also possible that Emily could pass as an upper-class woman overseas simply because no one there would know the circumstances of her birth—the idea being that class status isn't so much an inherent quality as it is a matter of perception. This has implications for other working-class characters in the book as well—for instance, Uriah Heep, who rises to middle-class status but in some sense isn't "allowed" to be middle-class because of the way others perceive him.
At that moment, David notices Martha is at the door of the public-house and worries that Mr. Peggotty will see her too. Mr. Peggotty, however, continues talking, crying as he says that many of the families that took him in had young children he liked to imagine were little Em'ly's. Eventually, he went on to Italy, where he heard that Emily had been traveling in the Alps. He therefore turned toward Switzerland, imagining what he would say to Emily when he found her. He was sure that if he could only see her, she would agree to come home, and he even bought a plain dress for her to wear instead of the finery Steerforth gave her. Ultimately, however, Mr. Peggotty couldn't find Emily, so he returned home, where he found several letters and 50 pounds sent by Emily.
Although Mr. Peggotty doesn't think badly of Emily for her actions, his reaction to the children he encounters on his journey suggests that he does buy into certain ideas about fallen women. The only thing that actually bars Emily from marriage and family life going forward is social prejudice, but the weight of that convention is so overwhelming that it causes Mr. Peggotty to mourn for the children Emily won't have as though she has actually died. It's also interesting that he carries a "country dress" with him so that he can immediately reclothe Emily as a working-class woman when he sees her. To some extent, Mr. Peggotty seems to see his niece's social rise as shameful in and of itself, whether because working-class ambition was seen as suspect, or because ambition in a woman was often viewed in terms of prostitution.
Mr. Peggotty shows David a letter little Em'ly sent to Mrs. Gummidge. In it, she pleads with Mrs. Gummidge to show her some mercy and send news of Mr. Peggotty to her. If Mrs. Gummidge is too angry to do so, Emily begs her to talk to Ham and see whether he is willing to forgive her and, if so, to honor his wishes and write to her. Mr. Peggotty tells David that Mrs. Gummidge and Ham did in fact write to little Em'ly, telling her that her uncle had gone looking for her. He later received more money from her, and is now planning to travel to a village on the Upper Rhine based on the letter's postmark.
The fact that Emily encloses money in her letters isn't especially surprising, given that her childhood wish to become a lady was motivated in part by a desire to help her family. Under the circumstances, though, the money inevitably reads more as compensation for Emily's loss (and lost virtue) than as simple financial assistance. Presumably, this is why Mr. Peggotty refuses to accept it.
David asks Mr. Peggotty about Ham, and Mr. Peggotty says that he is as hard-working as ever and is always willing to help others out, even when the job is dangerous. Peggotty, however, believes that Ham is heartbroken.
Whereas Ham previously worked hard in the hopes of one day establishing a home for himself and Emily, he no longer seems to be looking toward the future when he works. At best, he seems to be using work as a source of distraction, and at worst, a form of self-destruction; as Mr. Peggotty puts it, he has "no care no-how for his life."
Mr. Peggotty gathers up his things and prepares to leave, explaining that (next to finding little Em'ly), his greatest desire is to return to Steerforth all the money that Emily has sent. If he dies before he is successful, he at least hopes that Emily will find out about his search for her.
Just as Mr. Peggotty refused to accept payment for Emily from Mrs. Steerforth, he hopes to return the money Emily herself has sent so as to avoid profiting off of her sexual misconduct.
As Mr. Peggotty and David leave, David sees Martha—who has listened to their entire conversation—sneak away before them. David walks with Mr. Peggotty to the inn where he is staying, and when he returns to the pub, Martha is nowhere to be seen.
Martha's evasiveness is a reflection of the shame she feels over her fall; it would be deeply embarrassing for her to even talk with "respectable" members of society at this point.