This sequence is really a vaudeville turn. We've already seen Honest John bamboozle Pinocchio once, so the only surprise here is his approach and the individual gags in the sequence. There's no character development, just comedy and exposition. Pinocchio is heading home and the purpose of the sequence is to get some laughs while changing Pinocchio's destination.
Walter Catlett, who started in vaudeville and had a long career as a character comedian in films, is the voice of Honest John. Catlett worked for Frank Capra several times (Platinum Blonde, Mr. Deeds Goes to Town, Here Comes the Groom) and also worked for Howard Hawks in Bringing Up Baby. Hawks credited Catlett with teaching Katharine Hepburn how to play comedy in that film. Disney was obviously happy with Catlett as he later hired him to play Colonel Plug in Davy Crocket and the River Pirates. Catlett knows how to deliver Honest John's slick line of baloney fast enough to overwhelm any objections.
Animation-wise, this sequence is marked by the absence of big names with the exception of John Lounsbery on Gideon. This is another sequence where we have to acknowledge Disney's bench strength. Harvey Toombs, Sam Cobean (later a New Yorker cartoonist) and Preston Blair all contribute solid work to carrying the sequence. Phil Duncan does some very funny animation of the disheveled Pinocchio after Honest John examines him.
The characters once again exit singing "Hi Diddle Dee Dee," and Honest John and Gideon vanish from the film having accomplished their purpose. From this point forward, the film takes a much darker turn.