Time to continue my detailed discussion of Knights of the Fallen Empire's individual chapters! Unsurprisingly, this post will contain spoilers for the chapter in the title and may contain spoilers for previous chapters as well.
Your character awakes... in a dream. You can tell because the edges of the screen are all fuzzy and everyone speaks with an echo in their voice! You appear to be standing on an asteroid in the middle of a debris field, with Valkorion keeping you company and complimenting you on your abilities. I don't know if male characters get to do this as well, but as a female character you get the hilarious option to ask: "Are you flirting with me?"
He shows you an image of all your companions fighting in what appears to be a heroic last stand, while talking about them in somewhat disparaging tones. You have the option to agree with him or defend them. Your visions get chaotic and Valkorion explains that the carbon freezing wasn't handled properly and you are slowly dying. You fight some imaginary skytroopers as a representation of you fighting for your life. It's worth noting that while you have no companions, you appear to be receiving heals from Valkorion throughout the entire thing! You also fight visions of the past in the form of old class story enemies.
After running across the asteroid, you make it towards your old companions, but they are all dead. Next you find yourself on a ruined version of either Coruscant or Dromund Kaas, floating in space. All the while Valkorion is with you, trying to fill you with doubt about your choices, insinuating that everything you did was pointless and/or wrong. You actually have to fight nightmare visions of members of your own faction that have turned against you, with an attached bonus mission to revive fallen citizens - a shred of hope in an ongoing nightmare? In the end you encounter someone you used to work with in your class story, such as Master Satele as a Jedi knight or General Garza as a trooper and have to kill them as well. Valkorion wants you to feel good about it too. Whatever you reply, a piece of debris suddenly comes loose from the building above you and crushes you, prompting another change of scenery.
You find yourself on what looks like Ziost after its "consumption" (though still with a backdrop of endless stars) and Valkorion tells you that the events on Ziost showed him that he has moved beyond death and is finally free of "crude" vessels such as hands, voices and children, hinting at the various forms in which he has appeared in the different class stories. He also says that he's done everything he can to keep you alive through the carbonite poisoning as he considers you a part of him that he wishes to keep. Mysterious!
A giant Monolith appears and Valkorion tells you that he can only help you if you will accept his power. Whether you accept or refuse his help, you will still be provided with ongoing heals while fighting the mob, though it's worth noting that at this point, accepting or refusing Valkorion's help has no alignment adjustment associated with it.
He says that you have a common foe, and after a fade to black you find yourself at the Eternal Throne, with Arcann sitting on it and Vaylin standing nearby. The scene looks much more real than any of the previous ones, and ambassadors from the Republic and Sith Empire kneel before the throne. Who else noticed that the Sith envoy looks like Darth Vowrawn from the Sith warrior story? The Republic ambassador wears the garb of a senator, but otherwise I couldn't place him. Valkorion says that more time has passed than you think and that Zakuul rules the galaxy now, though he is displeased with his children "abusing their power". Talking about his children makes him sound oddly romantic and he even mentions having found love on Zakuul, but he insists that they need to be stopped before they "ruin everything".
Vaylin suddenly draws her saber and stares at you, seemingly able to perceive your dream manifestion. Then she stabs you and you collapse, while Valkorion comments that you're being "reborn"... (in chapter three).
After the frantic events of chapter one, chapter two gives you some time to breathe and reflect, being fairly light on combat and focusing on how Valkorion appears to have ended up in your head. (It's also one of the shorter chapters.) Spending some time in a dream also gives the story the opportunity to introduce the idea of that five-year time skip that was talked about before the expansion, without having it feel too sudden.
Nonetheless I have to admit that personally I'm not too fond of this chapter, probably because I'm just not that into "dream stories". Or maybe I'm just jealous of people in fiction always having deep and meaningful dreams when my own are just random and make zero sense.
Valkorion has some interesting lines in this chapter, but there's always that feeling that it's probably all a dream anyway and none of it is true. Scenes like finding your dead companions or seeing your capital destroyed certainly serve to introduce some doubt about what may have happened in your absence though.