When George was afraid, he put his fears into the doll's house in his cupboard, where they turned into peg dolls. One night, he overheard his parents talking about sending him to see a doctor about his fears. George misunderstood what they meant, interpreting it as a rejection of him as their son, causing the peg dolls to begin kidnapping people and stealing things that scared him. Eventually, his fears grew so strong that his mind sent a plea for help to the Eleventh Doctor's psychic paper.
When the Doctor arrived, he tried to help George face his fear. He deduced there was a powerful alien presence and the monsters he feared were real. When he opened the cupboard to face these monsters, he found nothing. He realised what George was and forced Alex to remember that Claire could not have children. George became frightened of being rejected, so the Doctor and Alex were sucked into the cupboard by the peg dolls.
As the Doctor and Alex were being attacked by the Dolls, the former shouted out to George to take control of the situation and face his fears. He appeared in the doll house as well, but was also attacked due to his lingering fear of abandonment. Alex rushed towards George to protect him from the Dolls, assuring him that he was his son and would not be abandoned. Everyone was subsequently released from the doll house and returned to normal, while George continued to live as a normal, happy boy.
Behind the scenes
According to The Brilliant Book 2012, a book that contains non-narrative based information, George's scripted last name was Thompson. However, there is no indication of any last name in Night Terrors as originally transmitted. However, the My Special Book section of the book has George himself write his name as George Thompson.
Also in it were pages from George's "diary" that mentioned he watched a television program about a child that misbehaved so badly, his parents sent him away. This was a contributing factor to George's fears.