The Sandman dresses as Wee Willie Winky. He pretends to sleepwalk through the town (complete with nightshirt and cap) carrying his bag of magic sand. He stops at a dance hall and begins sprinkling the kids with sand causing them to fall to sleep - on their feet no less - allowing him to easily rob them.
Moments after he leaves, Spidey arrives and joins in with the dancing - not noticing that everyone is sleeping! When Spidey finally realizes that something strange is going on, he sees the sand laying on the floor, and picks some up and smells it - causing himself to fall asleep! When Spidey finally awakens, he goes after the Sandman.