The episode takes place time-wise around the end of the first season of the show (though not given an "exact" episode parallel like the last one with Tomoyo). However, it strangely works better to watch it at the end of the second season and I don't think it would have the same impact if watched in tandem with the first season's end.
Any fan of the show who has watched up until this final OVA episode knows that both Fujibayashi twins struggled with affections towards the main protagonist Tomoya Okazaki since episode 1, and as we find out later, even before that (due to the prequel episode given to us late in After Story). However, as sadly expected, Tomoya is destined for his rightful love for Nagisa. This OVA gives us a lovely taste of "what could have been" and further enhances the entire Clannad experience and story.
The special, if anything, gives us some GREAT exposition on Kyou's character, as well as Ryou, that can also echo and enrichen the normal show in retrospect:
We see that Kyou, despite her rough exterior, is actually a very sensitive girl who is afraid to get emotionally hurt and has a very sacrificial outlook towards those she loves and cares for deeply. You heavily sympathize with her character's loss more in the normal story due to this chapter.
On the flipside, Ryou is shown to be that, though she is the shyest girl out of the main cast, once she begins to date Tomoya, she becomes clingy, desperate, and willing to change herself to keep him "hers". She faintly shows a fiercer side of having a more bold and "aggressive" nature buried deep down below her frail appearance.
Again, this causes a power struggle of emotions for the watcher, as they are torn between two quality girls and their love for Okazaki. I personally was "tossed in the storm" (just as I was in the first season of the main show when Tomoya shows who his heart truly lies with and the emotional aftermath is spilled out on the others). Argh, it's really annoying, as my loyalties lie with almost all of them (the girls). If anyone was longing for and missing a love triangle in Clannad, here you are (as we already also were given a brief and faint "harem" in the main plot of season 1).
By the end of this OVA, we see that Tomoya and Kyou would have made a great couple easily in another lifetime (more so, than Tomoyo in the first "alternate world" OVA, in my personal opinion).
Fun note: This final special is also the first time true kissing is featured in Clannad! The creators were masterful in weaving together a show without kissing (for what reason? I cannot tell), and give those fans who have been craving it the whole time with a "heck, why not?"-kind of gift.
In the end, though Nagisa Furukawa is destined to intertwine with Tomoya, this OVA gives us an even richer insight into the personalities of some very important "other" main characters and is not to be overlooked.
Again, the art of this episode is more of the same regarding Clannad/Clannad: After Story and echos well in "tipping its hat" to a masterpiece of a show that is concluding before our very eyes. We are treated to hearing the nostalgic opening of After Story once more as it leaves us with a warmth of long-lasting memory. Unless you absolutely hate Kyou or Ryou for some specific reason, there is no reason to NOT love this "special" of an episode.
As it is a special, it is placed as the final "Episode 25" in most orders of After Story's episode listing. However, I would recommend saving and watching the prequel episode last (if you haven't watched it already, Episode 23), as that gives the viewer a better retrospective echo of "memory" upon departure regarding the main plot and, ultimately, the entire story that is...Clannad.
