This is my favorite TNG episode for a couple of reasons. First, it shows that they didn't need amazing effects and set pieces to drive the story - most of this ep consists of the actors sitting in a single set and talking, yet the story is still fantastic and the episode is riveting.
Next, this is my favorite because Data is my favorite Star Trek character overall, and I feel this episode is a key piece of his character's development.
This one is also my favorite. The love without being able to express love. The growing pains Lal endures. And my favorite scene, when there's a couple kissing on ten forward and Lal yells "he's biting her!". Just tickles me. Likewise, when Lal goes to try out kissing with Riker and Data asks "what are your intentions with my daughter?", Great writing. Then the utter sadness in the end. This episode takes you on a beautiful rollercoaster of human emotions, yet they are just out of reach by Data.