Ten years ago, after Gray had been saved by Ul, he had become her student so that he could become powerful enough to defeat Deliora and avenge his parents. Along the way, he had picked up the habit of randomly taking off his clothes, but he had remained a dark and gloomy child. When he heard that Deliora had reappeared, Gray had decided to go try to defeat it, even after Ul had threatened to expel him. Ul had of course gone after him and had told him that if Deliora was his darkness, then she had a reason to fight. Lyon, however, couldn’t accept the fact that Ul could lose, and he had tried to use the Iced Shell spell on Deliora. Ul had stopped Lyon by freezing him and had cast it herself instead, sacrificing her own body so that it could become the ice that trapped Deliora. As she disappeared, she asked Gray to tell Lyon that she died and had also urged him to move forward towards the future. In the aftermath, Gray had indeed told Lyon that Ul died, and Lyon had blamed Gray for it. Back in the present, Gray and company are attacked by some of Lyon’s other underlings, so Erza and Lucy hold them off while Gray continues on to the temple. He arrives in time to interrupt Natsu’s fight and surprises Lyon by starting to cast Iced Shell because he’s willing now to sacrifice himself.
This turned out to be a pretty good episode thanks mostly to the strong scene between Ul and Gray right before she sacrificed herself. Ul had some nice lines in there, helped along by the soundtrack, and it’s probably the most emotionally powerful the series has been thus far (though it’s still a far cry from, say, certain episodes of Fullmetal Alchemist: Brotherhood). It was good to see too finally where Gray’s clothes-removing habit stemmed from. The other main highlight of the episode was of course Gray getting ready to cast Iced Shell at the end, and while that made for a nice short-term cliffhanger, I highly doubt that a central character like Gray is going to sacrifice himself at this point, never mind the fact that the preview for next episode showed him alive. More than likely something will stop him or reverse the process.