It all kicks off when Monkey, Pigsy and Sandy find a pool and bathe in it, but then it turns out to be the fountain of youth and they all become babies.
Now I'm not normally one to quibble over the fine details of plot-holes, but I have to point out that Monkey was never a baby - he was "born from an egg on a mountaintop" and was fully grown when he burst forth from said egg. This is shown at the beginning of the title sequence of every episode!
Anyway, I guess if Monkey didn't turn into a baby then there wouldn't be much of an episode, since the whole plot revolves around the consequences of these three being babified.
Besides which, this isn't the silliest aspect of this plot - naturally their costumes all shrink down to become tiny and cute versions of what the adult characters wore, even if it would have been more realistic for them to have been found by Tripitaka inside the massively-too-big-for-them clothing. But they are all three now wearing pink baby hats, which have appeared from nowhere!
It's up to Tripitaka and Yu Lung to find a way to reverse the process (other than just waiting around while they grow up again), and they quickly find out that the tears of a particular kind of demon will do the job.
The three babies are left in the care of a husband and wife while Triptaka and Yu Lung go in quest of demon tears, but when they don't come back after a couple of days the couple decides to sell the babies in the marketplace. Further complicating the plot, the three babies are sold to separate families.
Baby Pigsy is bought by a woman to replace her own baby, which had been stolen earlier by baby-eating demons (the same demons Tripitaka is looking for) while she was visiting the fountain of youth to drink enough of it to keep her young. A substitute baby will save her explaining matters to her husband, though he does wonder why their son is so ugly.
Baby Sandy is bought by the owner of a freakshow, and exhibited as a half-human half-fish baby.
Baby Monkey is the last to be sold by the couple, and he is bought by the baby-eating demons (who have presumably by now eaten the baby they stole earlier - given what happens later this is not certain, but why else would they have need for another baby?) and taken back to their cave for dinner.
Tripitaka and Yu Lung are, of course, the least capable at confronting baby-eating demons, so the inevitable result is that they end up tied up in the demons' cave. But Tripitaka's next plan is subtle, and one might even say devious...
He volunteers to be eaten in place of baby Monkey, and the demons take him to the fountain of youth to turn him into a baby. Once this is done, they pity his self-sacrifice and shed tears, which fall upon Monkey and return him to normal.
Monkey swiftly sets about fixing everything. He uses the fountain of youth to turn the demons into children and they promise to reform. He restores Tripitaka, then flies off to find Sandy and restores him too with some of the demons' tears saved in a jug.
Monkey and Sandy track down baby Pigsy and restore him, but then the 'father' sees them and fights with Monkey for trespassing. In the fight he breaks the jug with the last of the tears in it, and this is spilled on his wife who, because she had been using the fountain to keep herself young, immediately ages to death.
So a somewhat melancholy ending for this man, having lost his wife and son, you might think. But no because, in the last scene, as the pilgrims depart, he has a child once again. This is not explained, and we are left to wonder how he came by this - it is not unprecedented for those that die by monsters to be returned to life in Monkey, but there is usually a scene showing this. On the other hand, we have already seen that there are occasionally babies for sale in the marketplace...