This is where Psi Corp start playing a role in things, and we get to see if Ivanova's negative feelings towards them are warranted. Spoiler: they are. The episode also puts some guns in drawers for later use, even if it doesn't seem to do much at first glance.
Psi Cops Bester and Kelsey turn up to investigate a rogue telepath Jason Ironheart, who they believe is hiding on the station. They're first seen going through customs, with Bester talking telepathically to a security officer who answers out loud and doesn't appear to notice. Then they arrive at Commander Sinclair's office. He does notice and isn't happy about it - such psychic intrusion is against the rules.
Bester is unapologetic. Special circumstances warrant special measures, or at least that's his excuse. He has Sinclair call in the station's resident telepath Talia Winters, who is a former student and lover of Ironheart's, so they can scan her. As they carry out what's obviously a painful and deeply unpleasant procedure on her it becomes clear Bester enjoys the power he has over others.
There's some nice characterisation here of Sinclair. He clearly dislikes Bester and what he represents, but he's sympathetic to Talia and tries to shield her, and she's surprised by his compassion. Ivanova features briefly, and in hindsight must have a mind of steel - at this point the audience knows she hates Psi Corps, but not that she herself is an unregistered telepath. While Bester's not permitted to scan the command staff, he'd have no problem picking up their surface thoughts which he's almost certainly monitoring.
It's only after the scan that Ironheart makes himself known. He tells Talia he's been subject to Psi Corp experiments to ramp up psychic abilities and as a result he's become a telekinetic. They want to use his powers for assassination. Not only does he not want this, but the powers are growing too fast for him to control. As they speak he has a "mindquake" and tells Talia to run.
Sinclair and Talia concoct a plan to get Ironheart off the station safely, although why they thought it could remain a secret is beyond me. Bester sees Sinclair's clearing a route to the docking bay for what it is. There's no attempt at misdirection, although to be fair there isn't a lot of time. After a confrontation in which Kelsey dies, Ironheart escapes and turns into a being of pure energy. He gives Talia a gift before he departs, later revealed to be minor telekinetic powers and an ability to block telepathic scans.
While this is going on, Catherine Sakai is hired to conduct a survey of Sigma 957. She's warned off by G'Kar - she needs the permission of the Narn government to proceed - but threatens to go over his head. When she leaves to do the survey he's seen calling the Narn Homeworld for a fighter to go to Sigma 957, apparently making good on his promise that she won't return. However, as he tells her, "no one here is exactly what he appears". When her ship has a brush with an unknown entity and goes into a decaying orbit, it's G'Kar's fighter that rescues her.
While this encounter is set up as an unsolved mystery, it's actually doing double duty in introducing elements that will be important later. G'Kar's observations about the nature of the beings at Sigma 957 reveal not only a hidden spiritual side but also set up the idea of the First Ones, and this particular race will be contacted again in season 3. That's some pretty heavy lifting for a B plot.