Let's see... haven't watched the episode in at least a year but I'm sure I remember it.
Desmond conscious appeared to have traveled back in time and he was with Penny. He decided he was going to marry her (and try to change the past) so he goes to the ring shop to buy a ring. Ms. Hawking is there she helps him when he says "I'll take it" she pauses tells him no you won't, you don't buy the ring you leave and you end up on the island. Desmond gives a big WTF. They take a walk have some chestnuts and some dude with red chucks bites it. Des says you knew he was gonna die Hawking said yes, there's nothing I could've done. He doesn't die today he will tomorrow (this of course was saying that Charlie was gonna die no matter what) because the universe has a way of correcting itself. I think this was the gist of it... Des doesn't propose gets whacked at the bar and he returns to his island self.
Also remember that Hawking was in the picture in that religious guy's office (when Des was a monk?). Not sure the connection there but we've seen her there too.
I believe this transpires in season 3