George's psychic abilities, due to being a Tenza, caused his thoughts to manifest and alter reality if they were particularly strong. When George was afraid, he put his fears into his dollhouse, where they turned into peg dolls.
George misunderstood when his parents spoke about taking him to the Doctor's, interpreting it as a rejection of him as their son, causing the peg dolls to begin kidnapping people and stealing things that scared him.
When the Eleventh Doctor arrived, he tried to help George face his fear. He deduced there was a powerful alien presence and the monsters he feared were real. When he opened the cupboard to face these monsters, he found nothing. He realised what George was and forced Alex to remember that Claire could not have children. George became frightened of being rejected, so the Doctor and Alex were sucked into the cupboard by the peg dolls.
As the Doctor and Alex were being attacked by the Dolls, the former shouted out to George to take control of the situation and face his fears. He appeared in the dollhouse as well but was also attacked due to his lingering fear of abandonment. Alex rushed towards George to protect him from the Dolls, assuring him that he was his son and would not be abandoned. Everyone was subsequently released from the dollhouse and returned to normal, while George continued to live as a normal, happy boy. (TV: Night Terrors)