When Homer, Marge, Bart, and Lisa unsuccessfully try to get Maggie to speak, Marge tells the family the story of when Lisa said her first word. Marge begins telling the story by describing the spring of 1983 as a time when "Ms. Pac-Man struck a blow for women's rights." It is March 1983, and Homer, Marge, and Bart lived in an apartment on the Lower East Side. One day, after Bart flushes Homer's wallet down the toilet, Marge reveals to them that she's expecting another baby, which leads to Bart imagining a new brother who he can use as a scapegoat for his own horrible behavior such as writing on the walls, using his tricycle to jump a ramp which happens to leaning on the baby, and using the baby to clean up the table when he spills his milk. After Marge's pregnancy-reveal, she points out to her husband that with another baby on the way, the family's probably going to need a bigger place. After talking to a real estate, who explains that the only houses that Homer and Marge can afford are in a neighborhood known as "The Rat's Nest," they go househunting while having Marge's sisters, Patty and Selma, babysit Bart. Homer and Marge try to look for houses, including a houseboat that Captain McAllister has until now. After unsuccessful attempts, the family find a house on Evergreen Terrace and buy it with a $15,000 down payment from the sale of Grampa's house. Homer promises Grampa he can live with them as thanks for his gesture, only to put him in the retirement home after just a few weeks.
In 1984, the Simpsons move into their new Evergreen Terrace home, with the Flanders family introducing themselves as their new neighbors. Ned Flanders has just bought a TV tray from the hardware store, and Homer agrees to borrow the tray from him (eight years later, in the present, the tray is still in the Simpsons' living room). Bart turns two years old, and for the first time, he watches Krusty the Clown, as well as Itchy & Scratchy. Krusty does a promotion for the 1984 Summer Olympic Games with his Krusty Burger chain, which is the "Official Meat-Flavored Sandwich of the 1984 Olympics." The promotion offers scratch-and-win game cards in which people can scrape off the name of the event from the game card, and if the U.S. wins a gold medal, that person wins a free Krusty Burger. Krusty feels confident that the states won't win anything. However, the Soviet Union boycott the Olympics, and with this, the U.S easily dominates every event, Krusty's accountant tells him he will lose $44 million due to the promotion. On air, Krusty angrily says he will personally spit in every 50th burger. Homer, however, finds those odds to be really acceptable, and continues getting a steady supply of free Krusty Burgers from redeeming his winning game cards along with the hundreds of other Springfielders lining up for miles outside the Krusty Burger Restaurant.
Bart's forced to give up his crib for the new baby--Homer ends up building Bart a new bed, which actually turns out to be pretty good, although the clown-headboard is very terrifying to the young toddler. While watching TV, Marge goes into labor and Homer drives her to the hospital--Bart stays with the Flanders family until his parents come home with the new baby. After Lisa's born, Marge reads a magazine and realizes that Bart may end up being a little jealous of Lisa. After finally meeting his new sister, Bart decides that he hates Lisa. Bart does become jealous of Lisa, and plays various pranks on her--such as shaving her head bald, sticking a bunch of stamps on her and putting her in a mailbox, and even shoving her through the Flanders' doggy door (he gets a timeout for each one). He blames Lisa for his problems and is about to run away, until she says her first word, "Bart." Bart discovers that Lisa can talk, and she can even say "David Hasselhoff", "Mommy", and "Homer" but not "daddy", much to her father's annoyance. After this, Bart holds baby Lisa for the very first time, and seems to appreciate her more from then on.
However, back in the present day, the flashback ends and Bart and Lisa are fighting. Homer takes Maggie to bed, saying that "the sooner kids talk, the sooner they talk back", and that he hopes that Maggie never says a word. When he leaves her bedroom, however, Maggie removes her pacifier and (unheard by the rest of the family) says her first word..."Daddy."