The episode is called "Got You Pegged" and it has a couple of stories about the problems with pegging people incorrectly and one story about how we have to peg people in certain circumstances.
The discussion was about how much we can know about someone and how we have to use what we can see. Here are some passages about this.
Whoever does not distinguish the neighbor according to the quality of good and truth in him may be deceived a thousand times, and his charity become confused and at length no charity. A man devil may exclaim, "I am a neighbor: do good to me." And if you do good to him he may kill you or others. You are placing a knife or a sword in his hand. (Doctrine of Charity 51)
The Lord says, "Judge not, that you be not condemned" (Matthew 7:1). This cannot in the least mean judging of someone's moral and civil life in the world, but judging of someone's spiritual and heavenly life. Who does not see that if people were not allowed to judge of the moral life of those dwelling with them in the world, society would collapse.... ... But to judge what the inner mind or soul is like within, thus what a person's spiritual state is and so his fate after death - of this one is not permitted to judge, because it is known to the Lord alone. ...
A general judgment is allowed, such as the following, 'If you are in your inward qualities as you appear in your outward ones, you will be saved or condemned.' But a specific judgment - as for example to say, 'You are of this or that character in your inward qualities, therefore you will be saved or condemned' - is not allowed." (Conjugial Love 523:1-2)
Where charity does not exist self-love is present and consequently hatred towards all who do not show favor to self. As a result they see in the neighbor nothing except his evil. Or if they do see anything good they either perceive it as nothing or else place a bad interpretation on it. It is altogether otherwise with those with whom charity is present. ...[W]ith those who have no charity, a feeling of hatred is manifest in every single thing; they wish to try everyone and indeed to pass judgement on them. Their one desire is to discover what is evil in them, all the time having it in mind to condemn, punish, and torment. But those who have charity hardly notice the evil in another person, but instead notice all the goods and truths that are his; and on his evils and falsities they place a good interpretation. Of such a nature are all angels, it being something they have from the Lord, who bends everything evil into good. (Arcana Coelestia 1079:2)