What happens first is that Elly volunteers to chaperone the party in order to apologize to the school for Mike being somehow born a defiant, chaos-loving monster despite her "attempts" to civilize him. As one could guess, Mike is less than thrilled with this development. Second, we have to deal with the fact that Deanna is as ready to understand that Mike had to insult her in order to survive as Mike will be ready to understand that Martha had no choice but to read his private note to her friends. Third, Brian, Gordo and Darryl decide to make Mike the prop in their theme costume.
The dance itself begins with Elly showing up at just the right moment to make Mike look like a big, stupid idiot with her big, stupid clown costume and concludes with
snippy idiot Deanna letting her hurt feelings make everyone's life that much the worse. The immediate after-effect was that Mike somehow managed to squeeze out an apology. The long-term effect is that it ends up taking a car wreck for Deanna to finally get it through her thick skull that Mike had a sloppy, embarrasing crush on her back in the day. This means that she spent the greater part of her life thinking of him as a scruffy little creep six-year-old. Granted, she was right about that part but not about the "creepy stalker freak-of-nature" part.