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Harry is completely stunned: "The revelation that his batty old cat-obsessed neighbor knew what Dementors were was almost as big a shock to Harry as meeting two of them down the alleyway" (2.3).
It turns out that Mrs. Figg is a Squib, a non-magical person born to a magical family.
She knows exactly who Harry is, and she has been watching him in secret on the orders of Albus Dumbledore, Headmaster of Hogwarts.
Mundungus Fletcher suddenly appears.
Apparently, Mundungus was supposed to be on guard duty for Harry.
But he went AWOL, leaving Harry vulnerable to the Dementors.
Mrs. Figg shrieks at Mundungus furiously for abandoning Harry.
Meanwhile, Harry had no idea that Dumbledore has been having him followed.
Harry is getting pretty angry that he keeps being left out of the loop when it's his own life at stake.
Harry and Dudley make it back to Privet Drive.
Aunt Petunia and Uncle Vernon both blame Harry for Dudley's weakened state.
As they get into yet another screaming fight, a delivery of owl post arrives from the Ministry of Magic.
It accuses Harry of breaking the "Decree for the Reasonable Restriction of Underage Wizardry" (2.75) by casting the Patronus charm off school property and in front of a Muggle (Dudley).
Harry has been expelled from Hogwarts, and Ministry officials will be coming soon to destroy his wand.
Harry freaks out and tries to get out of his relatives' house.
But then, another owl post delivery comes from Arthur Weasley, the father of one of Harry's best friends.
The note says: "Dumbledore's just arrived at the Ministry and he's trying to sort it all out. DO NOT LEAVE YOUR AUNT AND UNCLE'S HOUSE. DO NOT DO ANY MORE MAGIC. DO NOT SURRENDER YOUR WAND" (2.88).
So, Harry decides to stay put, even though Uncle Vernon keeps screaming at him for the Dementor attack.
Harry gets another letter instructing him that, "the Ministry of Magic has revised its decision to destroy your wand forthwith. You may retain your wand until your disciplinary hearing on the twelfth of August" (2.135).
Uncle Vernon keeps pushing Harry until Harry tells Uncle Vernon that Voldemort is back.
The only thing Uncle Vernon knows about Voldemort is that Voldemort murdered Harry's parents "and now he's sending Dismembers after [Harry]" (2.201).
So, Uncle Vernon tries to toss Harry out of the house to keep Aunt Petunia and Dudley safe.
But Harry can't leave — he'll be a target for attacks as soon as he leaves the shelter of his relatives' house.
At this tense moment, Aunt Petunia receives an anonymous Howler that says only: "Remember my last, Petunia" (2.217).
As soon as Aunt Petunia hears this, she tells Uncle Vernon they will have to keep Harry (whether they want to or not).