We meet our "hero," Prospero, who somehow thinks that he can escape from the Red Death that's destroying his kingdom. He leads a retreat to his castellated abbey and locks himself and his 1,000 favorite knights and ladies inside. They're there to part. No dying is going to happen there any time soon.
Prospero's flight from the Red Death appears to be successful, and after several months he decides to throw one heck of a party. It's one big celebration of life and all it's pleasures. And he ball is so strange that it does actually resemble a dream.
The appearance of the guest in the Red Death costume signals the start of trouble. Somebody has dared to remind all of Prospero's revelers of the horror from which they cannot escape. There is general disgust, fear, and outrage. This is the first suggestion that Prospero and his friends weren't able to escape the Red Death after all.
When Prospero orders the guest in the Red Death costume to be seized, no one does a thing – not even Prospero himself. He's lost control of the situation. The guest walks untroubled towards the black room.
Prospero runs after what turns out to be the Red Death itself, and dies (seriously, guys, trying to kill death is never a good idea). His guests die too, after finding out for themselves just what it is that has come to their masquerade. They were not able to escape the Red Death after all. How foolish they were to think they could.