The story takes place at Higher Crowstairs, the humble abode of a shepherd and his family who live in an isolated part of agricultural England. It is the mid 19th century. We are made to believe that the shepherd is lucky to live in such an isolated place - he is protected from the worst of the weather and seems to be thriving in the environment.
On the night of the story, the shepherd is having a party of celebrate the birth and christening of his second daughter. Outside it is pouring rain, but inside the guests are comfortable: "Absolute confidence in each other's good opinion begat perfect ease." The theme of insularity is at play here. The guests all know each other, are isolated from the rest of the world, and seem happy.
This happy scene is interrupted when a stranger appears. The dark, thin stranger upsets the merry affair. He is wet, poorly dressed, and happy to get out of the rain.
A second stranger appears and makes himself at home. This irritates the hostess who is none to pleased to share her mead with someone she doesn't know. Both strangers are rather mysterious, and the second one eventually discloses that he is a public officer who is searching for an escaped convict.
A third stranger enters the house, sees the first two strangers, then flees. The shepherd's guests are upset by the event and feel especially wary of the second stranger.
Shots ring out alerting the town that a prisoner has escaped. The mysterious officer convinces the guests to go after the third stranger, believing him to be the escaped convict. They are riled up and head out into the night in search of the convict.
The mood shifts here, shifting from the dark, mysterious ambience brought about by the strangers into a more lighthearted tone. While the party has dispersed (the men have gone out to search for the convict, the women have retreated to care for the baby), the first two strangers return. The first one comes back to help himself to more food and drink. The second one (the officer) decides to spare himself the trouble of running around in the rain and lets the party guests do all the work. After a while, the two men part ways.
Meanwhile, the shepherd and his party are bumbling around in the dark looking for the escaped convict. They finally find the third stranger hiding behind a tree. We know we are in a more comic mood because upon finding the stranger, the constable shouts, "Your money or your life!" These are not very bright people, and he has said a line common to criminals by mistake. They bring the third stranger back to the house, where the magistrate is waiting for them.
The magistrate instantly knows upon seeing the third stranger that the guests have not found their man. He describes the man he is really looking for, and the description matches the first stranger. The third stranger confesses that the escaped convict is his brother, and that he fled the party because he recognized that his brother was there right next to an unknowing officer (the second stranger) and he didn't want to blow his cover.
In your discussion of the mood in this story, it is important to note how it changes: the story begins with an insulated, intimate, jovial party among good friends, then grows mysterious and eerie when the strangers arrive, and then turns comic once the search party goes out. It ends on a happy note: the townspeople gain admiration for the escaped convict, who has managed to trick his jailer into sharing a mug of mead, and forget the affair.