Picard is held captive by the Cardassians and interrogated for information by Gul Madred (the great David Warner), who starts with truth serum and mind games before quickly moving on to torture. Meanwhile, the Enterprise learns of Picard's capture in the middle of their negotiations with Cardassian Gul Lemec (John Durbin), who now intends to use Picard's capture as leverage in the situation. It doesn't help that Picard's raid on the supposed Cardassian facility was a covert operation that violates the treaty and would be considered an act of war. In an example of outrageously false theatricality, Lemec claims Picard's operation resulted in the deaths of more than 50 men, women, and children.
Deep Space Nine was well into production by the time "Chain of Command, Part II" was made, but it wouldn't premiere for two weeks after this episode aired. One wonders if the TNG writers, knowing what the Cardassians would be to DS9, decided ahead of its sister series' launch that they wanted to establish some real meat behind the society that would be the new show's primary nemesis. "Chain of Command, Part II" provides a meaty entry point into the Cardassian mindset through the dark and intense scenes between Picard and Madred. These scenes are all the more believable because we come to see Madred not simply as a generic antagonist, but a specific, even understandable, product of a military government-state that pulled itself out of poverty and starvation by lashing out and conquering its interstellar neighbors (like the Bajorans).
There's no doubt the Cardassians are designed as an Orwellian society. The entire Picard/Madred subplot isn't simply inspired by 1984; it's directly transplanted — from the nature of the electronic torture device to the interrogator's desire to gain not just information but dominion over his victim's mind, to the whole business of the five lights versus the four. (In 1984, it's five fingers instead of four.) Patrick Stewart and David Warner are masterful in scenes of psychological and physical intensity, taking place in a room with production design that oozes dank and dim.
But what also stands out here are the nuances of character and society. Madred has a quiet scene with his daughter whom he clearly loves, and he talks with Picard about his time as a starving young boy on the streets of Cardassia, and how Cardassia made itself strong again through its military agenda. These are terrific, observant scenes of well-written dialogue. In a way, this insight allows Picard to understand Madred — even pity him — in what is, from Madred's point of view, his own strategic miscalculation. What Madred does to Picard is horrible, yes, but what the story does is pretty great — allowing us a portal into the Cardassian psyche via exposition that arises organically from the drama. By the time the episode is over, a major piece of TNG-era mythos has been established.
Back on the Enterprise, the situation with the negotiations, Jellico, and Riker continues to deteriorate, and ultimately Jellico relieves Riker of duty (and puts Data in command) after Riker questions Jellico's initial plan to sacrifice Picard as a negotiation tactic. The plot in this story is all-around solid and engaging, but it's elevated by the tension Jellico brings to the table and the fact that it all ties back into Picard's fate. Ultimately, Jellico and Riker must come to the most grudging of understandings — but not before a classic exchange where the two drop rank and tell each other exactly what they think of each other. (Jellico goes first, and then Riker's response is deliciously brutal.)
And who can forget, once all the cards have been played and the negotiations for Picard's release have been made: "There! Are! Four! Lights!" It's a moment of victory that Picard gets over Madred — but the episode wisely knows that it was a hollow one made possible only by the eleventh-hour agreement that secured his release. Picard confesses to Troi that not only was he going to say whatever Madred wanted him to, but that he could actually see five lights. When given the choice in front of Picard, it's easy to see how pride would be so small a price to pay, and how you could convince yourself a lie was the truth.