A lightning-rod salesman warns that a storm is coming into town; handbills advertise that a carnival is on its way.
Every one and their mother seems to be insisting that something is a-brewing and a-coming. Not to mention the title. The initial situation is basically made up of all this anticipation.
The carnival is evil.
What Will and Jim witness at three in the morning is enough to shake anyone's boots. The book's central conflict is made up of many mini-conflicts: the tension between Will and Jim, Jim's desire to grow older, Charles's desire to grow younger, the temptation of the carnival for the various townspeople, and of course the classic good vs. evil battle.
Jim and Will framed as thieves; Miss Foley turned into a little girl; Jim is tempted more and more by the carousel.
This is a case of increasing perturbations to the plotline, or one complication after another, each raising the dramatic stakes further. Will and Jim become more hopelessly entrenched in battle with the carnival, and their very role as heroes is shaken to the core by Jim's behavior.
The carnival rolls into town; Mr. Dark pursues and catches the boys; Charles nearly dies.
This is the high point of the novel when it comes to dramatic tension. With all this chasing, hiding, and spying going on, we've been building towards a final, direct confrontation for most of the novel – a confrontation between the forces of evil (Mr. Dark and his henchmen) and the forces of good (Will, Jim, and Charles).
Charles chases after the boys as Mr. Dark shoves them in the wax museum. And then, just when you think it's over, Jim goes for a ride on the carousel.
This is a typical post-climax suspense stage. Will Charles find the boys in time? Will Jim ultimately give in to temptation? Will Will pull him off the carousel in time?
Laughter and love conquers the carnival's evil work.
This is the stage in which things are explained and confusions are cleared up. Granted, a big part of this denouement happens earlier in the book, when Charles explains to the boys about the history of the carnival, its nature, and its source of power. But the other part of the denouement comes in the explanation of the carnival's weaknesses, of the weapons that can be used against it.
The boys and Mr. Halloway walk back to town, safe and sound.
This is a pretty straightforward happy ending. The evil has been conquered, and the conquering good heads back home, job well done.