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Freddy Krueger murdered several Springwood children, but got away with it because of a technicality. The town parents decide to take justice into their own hands, and thus set forth events leading to Freddy's immortality in the dreamworld. Sweet dreams, Springwood!
According to this episode, the technicality that freed Krueger was that Lt. Blocker failed to read him his Miranda rights. This strays from the films in which it was established that Freddy got off because of an invalid search warrant.
Excluding the intro, the entire first half features a pre-burned Freddy. However, Englund's face is never clearly seen onscreen during this time.
Freddy's body being in the trunk of a car in a junk yard is a reference to A Nightmare on Elm Street 3: The Dream Warriors.
At the beginning of the second half of the episode, Blocker steps outside of a distinct house. This is the house featured prominently in the first two Nightmare on Elm Street films and made appearance in most of the remainder of the film series, mainly in the nightmare world.
Freddy: No! No! No! Don't be afraid. This time, it isn't one of your nightmares. This one was mine.
Freddy: I... am... forever.
Freddy: I'd rather burn up than fade away!
Freddy: (as he's being burned alive) I'll be back! I'm free! Free! (laughs)
Freddy: That was then. This is now. Springwood's nightmares are just beginning.