This two part season finale, comprising episodes 12 and 13 ("Bad Wolf" and "Parting of the Ways") of season 1, takes place on the familiar Satellite 5 from the episode "The Long Game."
When we left Satellite 5, the Doctor and Rose had set all things right with the human empire, or so we thought. Now, upon their return, things are even worse. The Doctor, Rose, and Jack Harkness have been teleported against their will into three separate game shows, future versions of The Weakest Link, Big Brother, and a makeover show, all run by robots. Rose is caught as a contestant on the weakest link, where unfortunately the weakest link is disintegrated each round. The Doctor is caught in Big Brother, where the one voted off is also disintegrated. Finally, Jack is on the makeover show, where the makeover includes not just a change of clothes but a change of body parts. Each game is deadly serious. Yet, people watch, a commentary on human entertainment preferences?
Who could be behind such a dastardly and devilish world? The Daleks of course. Turns out, the Daleks have been behind all of the troubles in the 4th great human empire, including our previous run in with Satellite 5. They have been preparing the world for destruction while they have been rebuilding their armies.
Now, fast forward through the fun action: The Doctor escapes the Big Brother house, Jack escapes the makeover show, and Rose makes it to the final of the weakest link, loses, and then runs, but cannot escape the disintegration ray. Rose disappears right before the eyes of the Doctor and Jack as they are moments too late to rescue her. This disintegration of Rose, of course, severely ticks off the Doctor, who now makes it his personal vendetta to discover what is behind all of this nonsense.
A trip to floor 500, the control center of satellite 5, finds not an evil editor, like Simon Pegg's character from the previous episode, but rather, a set of innocent human pawns, and a human/computer hybrid controller. The controller runs satellite 5, but seems to be receiving her orders from elsewhere. In her last moment of humanity, the controller is able to reveal to the Doctor the true characters behind this plot, the Daleks and there full strength army, on the way to earth bent on destruction.
Jack figures out that the disintegrator beam is not any such thing, but rather a teleportation device that transports the victim straight to the Dalek control ship. The Doctor, of course, plans his own journey to the Dalek ship via the Tardis. Mission: rescue Rose and deliver warning to the Daleks. Here the Doctor looks most like a god. He has done something (forcefield, the show doesn't explain) that makes him invincible to the Daleks weapons, all the while parading around the Dalek's ship spouting warnings. Here again we see that with the Daleks, The Doctor's usual mode of thinking is skewed. His willingness to use destructive weapons, i.e., guns comes out.
The Daleks now have religion, a new development for this species. In the rebuilding of the Dalek empire, the Supreme Dalek, Emperor of the Daleks has come to think of himself as a God. He is worshiped by the Daleks. This realization strikes the Doctor insanity.
Get ready for the Final Battle. Return to Satellite 5 and ready the defenses. The goal, give the Doctor enough time to produce a delta wave (whatever that is) which can wipe out the entire Dalek army. As the Doctor gets furiously to work, Jack prepares the ships defenses.
The Doctor's protective instinct, especially toward his companion Rose, causes him to sacrifice himself and send Rose to safety, namely, back to her home in the Tardis. The Doctor has realized that his delta wave will not only wipe out the Dalek's, but all life within its path, including the earth. He sends rose in the Tardis back home. Once there, without the knowledge to fly the Tardis she is stuck.
Enter Bad Wolf. We have been seeing this name throughout the entire first season. Here it shows up again all over Rose's neighborhood in graffiti. Rose takes this as a sign that she can find a way to return to the Doctor.
Remember back in episode 11, "Boom Town" where the heart of the Tardis was opened revealing the time vortex. Rose is convinced that if she can open the Tardis, revealing its heart, it will return her to the Doctor. She succeeds in this plan, but in the process, she stares into the very time vortex, absorbing its power (last time we saw that happen, Blond Slitheen reverted to an egg).
Meanwhile, back on Satellite 5, the Dalek army is closing in on floor 500 and the Doctor. Jack Harkness makes a valiant last stand, but is killed in the end. The Doctor then takes on the most godlike of choices: to take all life or preserve all life. Destroy the Daleks, and all the earth with them, or refuse and let the Daleks' destruction commence. This is like the godlike choice from episode 11, where the Doctor had the life of Blond Slitheen in his hands. Now, he has all life in his hands.
In the end, the goodness of the Doctor shines forth. He cannot wield the immense power and destroy all life. Mercy triumphs. But at what cost? Will not the Dalek's accomplish the same ends?
Enter Rose, who by looking into the heart of the Tardis, has taken in the power of the time vortex, and has become like a god. She singlehandedly destroys the Dalek's with her godlike power (Oh, and she also brings Jack Harkness back to life). She "unmake's" the Daleks with a thought, and scatters the words "Bad Wolf" throughout history as a sign to herself.
Yet, containing such power is beyond her humanity and it is killing her. The Doctor, in a self-sacrificing move, takes the power of the Tardis and the Time Vortex into himself. This will effectively kill him, but only temporarily, until his regeneration (resurrection anyone). Bring on the new series' first regeneration and our new Doctor, David Tennant.