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Rhaenyra takes a risk with Daemon and Otto wastes no time in using it against her
[Warning: The following contains spoilers from House of the Dragon Episode 4. Read at your own risk!]
There's no other way to put this: House of the Dragon Episode 4 is its most incestuous yet, thanks to disturbing developments in the relationship between Princess Rhaenyra Targaryen (Milly Alcock) and her uncle Prince Daemon Targaryen (Matt Smith). Here is the context: After King Viserys Targaryen (Paddy Considine) told Rhaenyra she can decide who she wants to marry, he arranged a tour for his daughter in which the Lords of Westeros and from across the Realm try to win her hand. Long story short: Rhaenyra is not impressed. We see a man older than her father attempt to woo her, followed by a child. Rhaenyra rejects every suitor and ends the tour early to return to King's Landing.
It's at King's Landing that Rhaenyra reunites with Daemon. The prince enters the Great Hall with a crown and a new haircut, and tells his brother he's been named King of the Narrow Sea following the Battle of the Stepstones. But Daemon swears his allegiance to Viserys, and is welcomed back to the Red Keep. Later on, Rhaenyra and Daemon have a chat, and the princess shares her recent troubles of being pressured to marry. "For men marriage might be a political arrangement," she tells her uncle. "For women it is like to be a death sentence." Rhaenyra just wants to live in solitude, for heck's sake!
At night, the princess finds a scroll that discloses the location of a secret passageway from her room. She disguises herself — no doubt knowing she would get into trouble if identified outside the palace at a late hour — and eventually meets Daemon, who is also in disguise. They sneak out and arrive in the city, where the two watch a play about the successor to the Iron Throne. It's clear from the tone of the play, and the reaction of the audience, that most do not want Rhaenyra on the Iron Throne because she is a woman. There's overwhelmingly more support for Aegon II Targaryen, the son of Viserys and Alicent Hightower (Emily Carey), to be the next ruler. Rhaenyra is understandably annoyed and stops watching the play.
Daemon takes Rhaenyra to a brothel next. The pair watches people around them engage in sexual activities, and Rhaenyra, like us, has some questions about why her uncle took her here. Also, why did they remove parts of their disguises and expose their silver Targaryen hair? You'd think that Daemon would try to hide their identities in the brothel, but who knows what he's thinking. He tries to impart some wisdom to Rhaenyra — something about how f--king is a pleasure, marriage is a duty — and they start to kiss. Eek! Rhaenyra's pants are pulled down during the intimate exchange, but it's unclear exactly how far they go before Daemon hits the wall and leaves. Rhaenyra is confused and walks out of the brothel. Her exit is spotted by a boy who we learn is one of Otto Hightower's (Rhys Ifans) informants. So no, not good for Rhaenyra.

Milly Alcock, Matt Smith, House of the Dragon
HBOWhile Daemon and Rhaenyra were at the brothel, Viserys requested Alicent's presence deep in the night. He has sex with her and the queen looks visibly uncomfortable and stares blankly at the ceiling. This happens after an earlier exchange where Rhaenyra, who is now on better terms with her former BFF, told Alicent about how she thinks marriage imprisons women. There's obviously a contrast between freedom and captivity that the show wanted to depict here.
Rhaenyra returns to her room and decides to make a move on Ser Criston Cole (Fabien Frankel). He initially tells the princess to stop but soon accepts her advances, and the two sleep together. The two have been great friends and Ser Criston is one of the few people Rhaenyra trusts so, can't say we didn't see this coming!
The next morning, Otto tells Viserys that Rhaenyra was spotted outside of the Red Keep at a brothel with Daemon. He says that the princess slept with her uncle, and Viserys is of course furious at this allegation. But he's also furious that Otto has been spying on Rhaenyra. It's clear as day that getting any dirt on Rhaenyra would increase the chances of Otto's grandson Aegon II being named as the new heir. "Do you wish to have your blood on the Iron Throne so badly that you wish to destroy my own?" Viserys asks Otto angrily. The king tells his Hand to leave. Go Viserys! Alicent overhears all of this since she was in Viserys' room, and confronts Rhaenyra. The princess swears that she did not have sex with her uncle, and Alicent believes her.

Paddy Considine Rhys Ifans, House of the Dragon
HBODaemon, who slept outside the walls of the Red Keep the previous night, is dragged into the Great Hall to be questioned by Viserys. He tells his brother he did sleep with Rhaenyra, and says he wants to take her as a second wife. Viserys is furious and tells him to leave King's Landing.
Viserys and Rhaenyra finally talk in this episode. Rhaenyra tells her father she didn't sleep with Daemon — Viserys says the truth doesn't matter, only perception does. He is no longer giving her the freedom to choose her partner, and tells Rhaenyra she has to marry Laenor Velayron (Theo Nate), the son of Lord Corlys Velaryon (Steve Toussaint) and Princess Rhaenys Targaryen (Eve Best). This will unite House Targaryen and House Velaryon, which, ahem, Viserys failed to do because he did not marry Laena Velaryon. Rhaenyra agrees to marry Laenor, but tells her father he needs to do something about the self-interested Otto. Viserys defends his Hand at first, but in a surprising but extremely satisfying move, removes Otto from his position.
The final scene of House of the Dragon Episode 4 shows Rhaenyra in her room, with the Grand Maester paying a visit. Viserys has sent him to give Rhaenyra a drink that would prevent a potential pregnancy, suggesting that the king does care about truth over perception more than he lets on.

Paddy Considine, Milly Alcock, House of the Dragon
HBOHouse of the Dragon continues Sundays at 9/8c on HBO, with episodes premiering simultaneously on HBO Max.