Up until this point, Watson has been relaying the events of the story directly. He now switches to the reports that he sent to Holmes during this period in time.
Books taking the form of a series of letters are called epistolary fiction: a style already largely out of style when Doyle wrote.
Watson reports that Sir Henry has taken a strong romantic interest in Beryl Stapleton. He notes that Jack Stapleton doesn’t seem very happy about this, which he finds odd. Watson also expresses concern that a romance between Beryl and Sir Henry will make it nearly impossible for Watson to stay constantly by Sir Henry’s side.
Note that, unlike his rapist ancestor, Sir Henry is affectionate and respectful of Beryl Stapleton when courting her. In contrast, Sir Henry’s other blood relative, Jack Stapleton, physically beats Beryl. This is a strong repudiation of the power of nature in nature vs. nurture.
Watson also notes that he has observed Mr. Barrymore using a candle to signal out into the moor late one night. With Sir Henry, Watson devises a plan to catch Barrymore in the act and get to the bottom of this newest mystery.