Halfway to the gate, Hermione stops Harry and says that there's someone watching them. Harry insists it's a cat, since they'd be dead if it were a Death Eater, and they throw the Cloak on. Hermione leads them down a dark lane and Harry stops dead when he sees what must've been his parents' house. He touches the gate and a sign appears, reading that the house has been left a ruin as a monument to Harry, James, and Lily. Harry reads graffiti on the sign wishing him luck. The happiness Harry feels disappears when he notices a small woman approaching. She stops and stares at the ruin, and Harry feels like she knows he and Hermione are there.
Harry's happiness at seeing written support from others continues to remind him that he needs to be aware that he has a larger community and that he needs to draw on them, as it not only makes it more likely that he'll have access to the right information, it'll also give him hope. The ruined house also serves as a reminder to passersby that the cost of standing up to Voldemort is high, but their support for Harry suggests that they see it as worth it.
The woman beckons to them, and Harry asks if she's Bathilda. She nods. They begin to follow her down the lane and into a cottage that smells horrible. When Harry looks at her, he sees that she's tiny and ancient, with cataracts and mottled skin. She goes into the sitting room and Harry feels the locket pulsing. Hermione whispers that this doesn't seem right, but Harry insists that Bathilda is just old. In the sitting room, Harry smells bad meat in addition to mildew. He helps Bathilda light candles and sees that many photos are missing from their frames. Harry notices one of the young man who stole from Gregorovitch and asks Bathilda who he is, but she says nothing.
The pulsing locket and the horrible smell should serve as warnings that this is a dangerous location; Harry's willingness to take note and then ignore it continues to illustrate how intent he is on figuring out the things he cares about most, and that he's not necessarily interested in figuring out the information that he needs.
Bathilda motions for Harry to go upstairs with her and shakes her head when Hermione moves to come too. Though Hermione is nervous, she stays downstairs while Harry follows Bathilda, slipping the photograph into his coat as he leaves. In an upstairs bedroom, Bathilda closes the door and in the time it takes Harry to light his wand, she quietly moves very close to him. She asks if he's Harry and doesn't answer when Harry asks if she has something for him. Suddenly, the Horcrux twitches, Harry's scar burns, and he hears Voldemort say, "Hold him." As Harry looks away from Bathilda, Nagini pours out of Bathilda's body.
In this moment, Harry learns that Hermione has been correct all along: Godric's Hollow was a trap. This, in retrospect, will show Harry that he needs to take his friends' instincts seriously, as they can bring new perspectives and ways of understanding what's going on to the table in ways that, if he takes them seriously, can ultimately protect them all.
Nagini bites Harry, knocks him to the floor, and begins to coil around him. Harry goes back and forth between his reality and Voldemort flying in his direction as he and Hermione battle with Nagini. Hermione explodes the room and Harry pulls her out the window, screaming with pain and Voldemort's rage as he and Hermione Disapparate. As Voldemort, Harry walks through the village, scowling at children dressed as pumpkins, and sees James and Lily playing with baby Harry through the window. James doesn't have his wand and Voldemort kills him immediately. He follows Lily upstairs and kills her as she places herself between Voldemort and Harry. As Voldemort directs his killing curse at Harry's face, he blows apart and screams in pain.
It's unclear in this instance if Voldemort is using his connection with Harry to purposefully show him this memory, or if it's just a matter of Voldemort reliving one of his worst memories and Harry being along for the ride. Regardless, seeing his parents' deaths allows Harry to see again that they sacrificed for him in senseless ways (given that James didn't have his wand to try to defend himself) but also how cruel and unfeeling Voldemort was and still is.
Harry, still moving between himself and Voldemort, sees Voldemort pick up the photo of the thief that he dropped as Hermione wakes him up. It's nearly morning, and he can see that Hermione has been wiping his face. She explains that he's been unwell and shouting, and that she had to use a Severing Charm to get the Horcrux off of his chest. Harry apologizes for insisting on going to Godric's Hollow and tells Hermione that Nagini was inside Bathilda's long-dead body. He sits up, insists on keeping watch, and asks for his wand. Hermione begins to cry and offers Harry his broken wand. She dutifully mends it, but it falls apart when Harry tries a spell. Harry is aghast. He borrows Hermione's wand.
For Harry, his wand has been a symbol of belonging to the magical world—not having it makes him feel as though he's cut off from his community and, indeed, cut off from the most important and powerful part of himself. However, it's also worth noting that while Harry loses his physical might when he loses his wand, he doesn't lose his mind—he still can, if he so chooses, figure out what he needs to do and rely on his wider community for the wherewithal to do it.