John visits the ledge where he sees a small house. It turns out that Sherlock has been living here the whole time and quietly investigating with John without him knowing.
John and Sherlock go back to the house and see that a nearby neighbor named Stapleton looks like someone in a portrait at the Baskerville manor.
They believe the Hound will attack that night because it had killed an escaped convict a few nights before. The Hound tries to attack Henry, but John, Sherlock, and a police officer from London kill it.
They catch the neighbor Stapleton trying to escape out the window. His wife is tied up on the bed.
They followed Stapleton and found he had drowned in the nearby swamp.
Stapleton actually was a Baskerville. He tried to kill the other Baskervilles because he wanted to live in Baskerville Hall.