With the Dream Collet stolen, the Cures are at a bit of a loose end. It seems certain that Desperaia will use the Collet at any moment, and once she does, that'll be the end of that - her wish will be granted and the Collet will be rendered useless. Worse still, they don't even have any way of attempting to stop her, since they have no method of travelling to the Nightmare realm.
Despite all this, Nozomi refuses to give up hope (that's kind of her thing, after all) and convinces the other Cures to go out and start shouting at the sky for the Nightmare folks to give the Collet back. As it turns out, their very refusal to abandon hope is itself irritating Desperaia so much that she decides against using the Collet right away, instead sending Kawarino to make them feel true despair first.
So Kawarino drags the Cures back to the good old Nightmare colosseum to force them into submission with his own strength. His true form looks...a bit silly, if I'm entirely honest, but its strength is the real deal. Its tails effortlessly absorb all of the Cures' attacks and direct that energy straight back at them. The one attack the Cures don't get to use is Divebomb Destruction, because Milk is in no state to help out - she's still feeling absolutely crushed by the guilt of having personally delivered the Collet straight into Kawarino's hands. Kawarino, of course, wastes no time taking advantage of this emotional weakness, and uses the opportunity to force a Despair Mask onto Milk's face. (Have I ever mentioned that Kawarino is an ass?)
And then Desperaia decides this would be a good time to give the Cures their final taste of despair by using the Dream Collet to grant herself eternal life, right before their eyes. The Dream Collet turns to stone, its power exhausted, and Desperaia finally emerges from beneath her mask, revitalised and ready to fill the world with despair.
Looks like there wasn't anything particularly special hidden underneath her mask, incidentally. Oh well. Can't have everything.
So yeah. Everything the Cures have built up over the entire series has been irrevocably lost, Kawarino is still at full power and too strong for the Cures to defeat, Desperaia has been rendered immortal, and Milk has succumbed to the dark side. It's going to take an awful lot of Power of Hope and Friendship to salvage a happy ending out of this mess.