This stage encompasses the entire time in Bath where misunderstandings abound. Catherine spends her time misunderstanding what the Thorpes are up to and apologizing to the Tilneys for confusions about social engagements. Catherine is falling for Henry here, but John Thorpe's pursuit of her is proving troublesome. Isabella gets engaged to James Morland, but there are hints that the greedy and socially ambitious Isabella is less than satisfied with the match.
The confusion worsens, and shows little sign of abating, from John's proposal to Catherine, which Catherine totally misses, to the scene where General Tilney throws Catherine out of his house. Catherine is mystified by Isabella and her behavior around Captain Tilney, doesn't understand John's interest in her, and is really confused by the General. Catherine also mistakenly suspects the General of murder during this period as well, which leads to some odd and awkward interactions between her and the Tilney siblings.
Though the confusion over Isabella was resolved a bit earlier, all the other misunderstandings and confusions are resolved when Henry comes to propose to Catherine. We learn that John lied to the General about Catherine's income, which is why Catherine was both invited to and later tossed out of Northanger Abbey. After clearing everything up and finding a rich man for Eleanor to marry, Catherine and Henry finally get married.