Davos is fetched from his cell by Ser Axell (whose own brother Alester is also in the cell, but gets no sympathy from Axell).
Axell also thinks Davos is a traitor. He wants Davos to approve the dodgy plans he's been making with Saan (who I've said all along is a bad-un) and recommend to Stannis that he be made Hand. Or else.
Davos can't be anything but honest to his beloved king Stannis, though. He comes close to being a little too honest with a dig about Stannis' disloyalty to Aerys, who was legitimately king before Robert. But Stannis appreciates the honesty. Sensible man. He also seems to have the measure of Axell and agrees that his plan is no good.
It's a wonder, then, that he doesn't see through this Melisandre and her tricks. At least GRRM is doing a good job of making them look like cheap fortune-teller tricks. Look into the fire and tell me what you see? Really? Is she channelling Madame Trelawney? Can she also bend spoons? Then again she does seem to be able to make people die, so there's that. And the vision in the fire did rather look like the Watch on that hill. Westeros is a confusing place for a skeptic.
Anyway Stannis makes Davos the Hand. I'm not quite sure why, given that he clearly had the power to get Davos out of the dungeon, he didn't do that before. But an honest Hand ought to be a good asset. So good decision, Stannis.
And now more spells, powered by either Stannis' blood or Robert's bastard Edric Storm's (he's got the blood of a king too, see). Seems like Melisandre is going to make Joffrey, and Robb die, which will be quite an upset (and Balon Greyjoy, which will be more of a footnote). Cripes.