In a parking lot somewhere, John and Arnold are going over the ground rules for the rest of the movie: the T-1000 can change itself into anything of equal size, but can't form guns or explosives. No chemicals or moving parts. Knives and stabbing weapons are good, though.
Sarah (remember her? Linda Hamilton?) is being interrogated by a cop who remembers Arnold killing seventeen police officers in the first movie. They have pictures of him. And they also have pictures taken at "a mall in Reseda," showing exactly the same person. Come to think of it, I guess the sunglasses and biker leathers might be preprogrammed fashion sense. It's the natural extension of specifying what color you want your Macintosh to come in, really. The interrogation doesn't go well, because Sarah is feigning catatonia. But she palms a paper clip, and we all know from The Silence of the Lambs how easy it is to escape from a maximum-security facility using only a small piece of metal.
John and Arnold are bonding. Well, John's doing most of the work, describing the way his mother used to sleep with anyone she could find who possessed useful military skills he could teach John. That's just creepy. It was traumatic when he was told she was crazy, and now he's finding out that everything she said was true. So now he wants to go bust her out of the mental ward. Arnold disapproves of the idea; he expects the T-1000 to copy Sarah Connor and wait for John to make contact. And kill Sarah, which is not an idea John likes. After a brief contest of wills, John starts screaming for help. Eventually, he discovers that Arnold has to obey direct orders. He does all the fun teenage things: "Stand on one foot, put your leg down, grab this guy," then he discovers that Arnold is willing to kill things. But John's got a conscience, and tells his new robotic killing machine that it's not allowed to kill things. ["Aw. Just like The Iron Giant, but with more cursing!" -- Wing Chun]
Then he orders Arnold to help him rescue Sarah. And not a moment too soon, because in the next shot, we see Officer Robert driving into the hospital. Then we see Sarah being put to bed in five-point restraints. Just to be creepy, the orderly licks her face. She doesn't react, but once she's alone, it's out with the paperclip. The restraints and door lock are no match for her mad skillz.