SpongeBob is asleep in his bed, then wakes up and realizes that it is Sunday, and therefore decides to have an ice cream "sundae" for breakfast. However, he sees he has no normal ingredients (ice cream, hot fudge etc.), so he creates a "sundae" made from onions, ketchup & peanuts from a nearly dead peanut plant he had been growing in his window. The sundae gives SpongeBob halitosis, which he does not realize. After breakfast, SpongeBob begins his Sunday to-do list that consists of saying "hi" to everyone in town. Everyone in town is disgusted by the smell of SpongeBob's breath, and avoids him. He is very confused by this, and asks Patrick if he notices anything wrong with him. Patrick, not having a nose, is unaffected by his foul breath (though his eyes get cracked after the scent hits him). He suggests that maybe everybody hates his laugh, and after a long and very irritating chuckle; SpongeBob flatly asks his friend if he's kidding. Patrick then comes to the conclusion that SpongeBob is ugly, and then does a "Reflection Test." SpongeBob is shocked by this, and isolates himself in his home.
Later, Patrick visits SpongeBob, who has now become a hermit. Patrick tells SpongeBob "The Ugly Barnacle" story, somewhat thinking it would help (which, of course, it didn't).
Patrick then attempts to teach him to be proud of his ugliness. It works, and SpongeBob's confidence grows, so they go to The Reef at night.
When they go in and sit down, all the fish still avoid SpongeBob. Angered that no one has the nerve to face SpongeBob's so-called ugliness, Patrick goes into a maniacal rage and forces the other viewers to look at SpongeBob. They all panic and run out of the theater, due to SpongeBob's breath. Patrick eventually gets hungry, so they go to get a snack, but no one is at the counter, so SpongeBob gives Patrick some of his sundae. Then Patrick goes to the bathroom.
When a guy runs away from Patrick in the bathroom, he thinks he has caught the "ugly" from SpongeBob. SpongeBob smells Patrick's extremely foul breath, and comes to the realization that they are not ugly, and simply have bad breath from the sundae. Afterwards, the two begin to run around shouting "We stink!" melting down The Reef with their corrosive stench. In the last scene, SpongeBob & Patrick run into Squidward, who is looking at wigs in a window display, and SpongeBob said, "Guess what, Squidward?" and they said "We stink!" Squidward looks confused as SpongeBob and Patrick run away laughing.
The Ugly Barnacle story is known as one of Patrick's most famous quotes in the series by fans.
SpongeBob refers the ketchup by its true pronunciation rather than what it says on the product label ("catsup").
When Patrick holds SpongeBob up and shouts "Look at it!", it has become an internet fad called "Patrick Wants You To Look At It" where a silly, funny or normal object will replace SpongeBob.
The shot where Fred is seen screaming, "DEUUEAUGH!!!!" has become a MAJOR YouTube phenomenon. He has been commonly referred "Deauuagh fish." The site includes videos of him screaming that for long periods of time, (10 hours, 10 minutes, etc.), and videos of other popular fiction characters imitating the scream. There are also videos of the scream in multiple languages, up to around 15 in a single video.
Because of this, this episode is has become fan favorite.
After SpongeBob finishes his sundae, he says "You know what they say, Gary...I'm easy like Sunday morning." a reference to the lyrics to The Commodores' "Easy."
In all U.S. airings of this episode, SpongeBob walks up to a building and says "Hi, building!" which causes the building to flee from SpongeBob's breath. He goes up to Patrick and says "I just don't get it!" and Patrick says "I don't either."
On VHS/DVDs, all Polish & YTV airings, the scene goes:
SpongeBob: (walks up to a building and waves) I just don't get it! (the building flees)
Patrick: (offscreen) I don't, either. (SpongeBob walks up to Patrick; the rest of the scene goes as normal, same lines repeated) (According to the commentary, this was a sound mixing error when the Season 2 DVD was made.)
In the DVD commentary, they mention at the end of this episode that Squidward had a deleted line. After SpongeBob and Patrick hug him and run away, he would say "Ugly and smelly, two for one.", but it cut due to the whole screen fading to blank at the end.