Hale comes to meet the Proctors since Elizabeth was mentioned in court. After speaking with them, Hale is about to leave when Elizabeth urges John to tell what he knows to prove that the children's illness was not from witchcraft. Hale listens and is almost convinced, that is when he brings up John's comment about not believing in witchcraft. The point is important for two reasons here. First the bible specifies the existence of witches so if John Proctor does not believe in witches then he opens himself to accusations. Also if John does not believe in witchcraft, then his theory of the children's illness will carry much less weight. John Proctor hedges here saying he knows the "Bible speaks of witches," so he will not deny them. However, here Elizabeth surprises by saying that she does not believe in witches because if they will accuse her who is innocent, then maybe all who have ever been accused were also innocent. This conversation foreshadows both the very next moment when they find that Rebecca Nurse, whom they believe is a very Godly woman, is accused and Elizabeth's own accusation. Elizabeth's vocalization of her thoughts on witches here isolates her from the town and demonstrates her own resentment at the hypocracy of the Puritan church.
Hale is there to interview the Proctors because Elizabeth's name was mentioned briefly in court and Hale has heard that John doesn't always attend church and John has a dispute with Parris. Hale's job is to find witches in Salem, so he has to investigate any and all allegations. However, in this scene, when the town comes to arrest Elizabeth, Hale begins to question what is happening.
During Hale's conversation with John he learns about John's true feelings about Parris. Hale also begins to respect John and his beliefs after Elizabeth is arrested.