The Blue Fairy is a Deus ex Machina, or machine of the gods. Gepetto has expressed his wish for Pinocchio to be a real boy, but the only way the story can move forward is through supernatural intervention.
The fairy says, "Good Gepetto, you have given so much happiness to others, you deserve to have your wish come true." Throughout the film, however, we never see Gepetto interact with a single human being until Pinocchio is made flesh and blood. We don't know it yet, but Gepetto is a recluse and I can only assume that his carvings are what have given others happiness.
This sequence is almost completely exposition. The conditions for success are laid down ("Prove yourself brave, truthful and unselfish...") and Pinocchio accepts them. Jiminy is bound to Pinocchio. The sequence is more necessity than entertainment.
It's no surprise that this sequence was directed by Ham Luske, who supervised the live action for the character of Snow White, and that the Blue Fairy was animated by Jack Campbell, who animated Snow White under Luske's direction. Where Snow White was about 5 heads high, necessitating redrawing the character over the live action, the Blue Fairy is completely human in her proportions. She looks traced from live action. Marge Belcher, who played Snow White for the camera, here plays the fairy. Given how little screen time the fairy has and given how unchallenging the acting is, one can only wonder why Disney decided to go with this design and with rotoscoping for the character.
Jiminy is mainly handled by Bernie Wolf in this sequence. Many of the shots are simply reactions where Jiminy comments to the audience. However, there are two stand-out scenes. The first is 37, where Jiminy gets so exasperated with Pinocchio's ignorance that he breaks out of hiding and interrupts. You can clearly see Jiminy's rising impatience. The other scene is 50 where Jiminy bargains for a badge. His excitement and enthusiasm are palpable.
Ollie Johnston and Milt Kahl handle Pinocchio. Johnston gets the scene of Pinocchio coming to life. The pose where he covers his mouth with his hands emphasizes the fleshiness of Pinocchio's cheeks, a sharp contrast to the inflexible shapes of his puppet self.
Pinocchio comes across as naive and pleasant in this sequence, but he really has nothing to do except ask questions. Certainly Johnston and Kahl make the character visually appealing, but there are limited acting opportunities here.
One name conspicuously absent from the draft is Oskar Fischinger's. Reportedly, he was responsible for the squiggley line effect that emanates from the fairy's wand when she appears and disappears and when she taps Pinocchio and Pinocchio comes to life. George Rowley is credited for the effects in all those scenes. Perhaps Fischinger's name was removed when he left the studio or perhaps he only developed the effect and Rowley is the one who did the scene-specific drawings.