Sherlock’s “of course” realization at the waterfall scene, when he realizes that MP!John isn’t oblivious like he originally thought is so precious for several reasons.
1. For the first time in a long time, he recognizes and fully appreciates MP!John’s (and, by extension, Real!John’s) intelligence and accepts MP!John as a teammate, an equal. So many of the missed opportunities and misunderstandings in the show come about because one of them tries to do something without the other. The recognition that John is worthy of inclusion in all plans is certainly a shift from earlier, when Sherlock disparages John for his intelligence.
2. He realizes that his MP can now be a safe haven for his fantasies because MP!John has acknowledged that it is not reality. John’s inquiry about the “other me in the other place” more explicitly displays that, but the storyteller line was proof enough.
3. Notice how MP!John reacts to Sherlock’s big secret. He’s not disappointed or angry or passive-aggressive. He’s understanding and curious. I think that this is indicative of the way that Sherlock wants John to react when he tells him the truth about his romantic/sexual history and orientation, but he’s scared that Real!John won’t understand and that he will leave. This scenario is one that I often reenact in my head with crushes; I play out all the scenarios I can think of, saving the most positive one for last.
4. MP!John is capable of letting Sherlock go back to the real world, even encourages it with the “time to wake up” comment. I think that Sherlock probably resisted indulging himself in fantasies of himself and John together because he was afraid that he would never want to return to the real world with Real!John. He tests that theory by jumping Inception-style over the edge. What does MP!John do? He lets him go.
In conclusion, this scene does a lot to reaffirm TJLC, but it does more than that. It breaks down barriers in Sherlock’s mind, barriers that he had set in place to protect himself. He realizes that he doesn’t need those barriers anymore because MP!John will protect him…and perhaps, Real!John will too.
So this imaginary location can be anything – a house or a street. / Yeah. / But he said “palace”. He said it was a palace.
i bet sherlock has to stop deleting “extraneous” non-urban animal breeds because of that time he called a deer a weird dog and john fell to the ground wheezing
two very important relationships in sherlock’s life are illustrated wonderfully with just two quick look into his mind palace. let’s look at sherlock and mycroft, and sherlock and john, and what each of them means to him and his genius.