The story of the peddler is very funny in the way it began and developed, because it produces in the reader a unique provincial flavor much familiar to the way in which many neighbors begin rumors that, in the end, everyone takes for granted.
In this case, while Silas was telling his story Mr. Snell, the town's "investigator" who always aims to crack down every mystery in town, brought up the topic of a certain peddler who visited the tavern a month before and went about talking about a tinder box that he was carrying. However, Mr. Snell was very specific in that this specific peddler gave him a bad impression, that he didn't like the look in his eyes, nor the way he would say things.
After that, since he is so convincing and respected by everyone for his self-declared ability to solve mysteries, people began to add observations and questions to the story. What was happening as a result was that this supposed peddler now was becoming more and more real in the eyes of the simple people of Raveloe, especially when being discussed by no other than Mr. Snell, whose memory is sometimes impressively vivid (which means, he may have a tendency to make up stuff).
As the neighboors continued to ask questions to determine whether the peddler was a foreigner, the question came up of whether he used earrings. Well, since Mr. Snell suggested this, everyone began to spread the rumor that the parson wanted to know whether anyone remembers the earrings, since it would be a distinctive sign.
All of a sudden, everyone in Raveloe began to remember "the earrings" (some described them big, some small, some with moons, etc), and the story of the peddler continued to snowball solid.
In the end, people went as far as declaring how many things the peddler sold to the villagers as he passed through town, and the Rainbow Inn became the place where all the things everyone bought would be exposed until the crime was cleared. Nobody was to visit the Rainbow until the crime were solved.
Meanwhile, the story caught even more strength when Silas himself was asked and he had to admit that he turned the peddler out of his home as he did not want to purchase anything from him. However, the famous tinder box that the peddler carried was somehow left near Silas's house. To top it all, Silas was always poor of sight and was considered as a near senile man. Hence, the real culprit went free while the poor, semi-fictional "peddler" continued to be the focus of the town's investigative eyes.