Spoilers for all of A Series of Unfortunate Events Season 3 follow. While Violet, Klaus, and Sunny started out A Series of Unfortunate Events just trying to survive Count Olaf, they learned that a mysterious organization held many secrets about their past. The Baudelaires finally discover the origins of the V.F.D., aka the Volunteer Fire Department, in the series finale, "The End." The Baudelaires and Olaf land on an island and it just so happens that the facilitator of the island colony created the V.F.D. years before. Ishmael doesn't end up being much better than many of the other adults the Baudelaires have encountered before. But he does provide the orphans some valuable insight into their parents' lives at the "The End" of A Series of Unfortunate Events.
Throughout the three seasons of A Series of Unfortunate Events, three letters followed the Baudelaires everywhere they went — V.F.D. While these letters stand for a lot of things, like "very fancy doilies," they really represent the secret organization that the Baudelaires' parents, Lemony Snicket, Olaf, and many others were once apart of before a schism occurred. And Violet, Klaus, and Sunny finally learn just how their parents and Olaf had come to be in the same group. It turns out that Ishmael — played by Peter MacNicol of Ghostbusters II — was the first to recruit volunteers.
Although he initially keeps his true identity a secret, Ishmael — or "Ish" as he prefers to be called — reveals to the Baudelaires that he once was the principal of Prufrock Preparatory School. He was inspired to create the V.F.D. after he encountered children at the school who had "the same gleam in their eyes" as Violet, Klaus, and Sunny. "When I met a child like that, I would recruit them into a secret organization — my organization," Ish says. Violet clarifies that he was the one who started the V.F.D. and he further explains:
"When a fire breaks out, the official fire department is there to fight it, but figurative fires need fighting too. And my students were interested in so many things — literature, science, music, theater, animal behavior, the culinary arts. And I thought, 'What if a group of curious, capable, young people came together to stand against the ignorance and injustice of this world? We could make it a quieter, safer place.' And for a time we did. And then, well, it all went up in smoke."
When Ish says "it all went up in smoke," he's, of course, talking about the schism that divided the V.F.D. into people who put out fires and people who started them. As a flashback in "The Penultimate Peril: Part 2" shows, the Baudelaires' mother Beatrice is partially to blame for the schism. Beatrice and Lemony stole the sugar bowl in order to protect it from Esme Squalor. When Esme attacked them with poisoned darts, Beatrice accidentally killed Olaf's father and Lemony took the blame. "When the schism broke out, I abandoned my creation and I sailed here to live in exile," Ishmael explains.
After the schism, Bertrand and Beatrice even joined Ish on the island for some time and their writings and inventions are located in their old tree house home. But they chose to leave because they knew they couldn't protect their children from the real world. Unfortunately, Ish, whose intentions were once so noble, wants to keep the inhabitants of the island ignorant. So he drugs them with the cordial and discourages anyone from leaving the island.
But no one can escape reality and it's Ish who finishes Count Olaf's wicked deeds once and for all when he shoots Olaf in the stomach with a harpoon. So the person who once connected Olaf to the Baudelaire parents is also the one who severs their ties permanently. And while the world is quiet on the island as Ish had wanted for his V.F.D. members, Violet, Klaus, Sunny, and Beatrice II leave in "The End." Because just like their brave parents, they know there are fires to put out in the real world that can't be avoided.