The House of Horrors is a fur shop located in a magical created city similar to a labyrinth. The building which was the House of Horrors could only be entered by Carlos.
At the top floor of the House of Horrors he found Cruella De Vil with the Ring of Envy which was something he very much was afraid of. At this point, he realized the House of Horrors was there to test his bravery and that Cruella (the person who had often haunted his nightmares) was really a manifestation of his fears.
Carlos ended up struggling with the Cruella shaped fears until he removed the Ring of Envy from Cruella's finger and placed it on his own.
As a proverbial last-ditch effort to prove he was not worthy of the ring and that he was still afraid, the Cruella manifestation told him to destroy her/it with the ring saying it would make him stop having nightmares. Carlos responded by dropping his arm saying " no I can't. I'm better than that." Carlos headed towards the elevators thinking "I'm better than you, Mother. No matter what you've always told me."
After thinking that he was better than Cruella, Carlos found himself outside of the House of Horrors where his friends informed him that he had come out of the House of Horrors in some kind of trance. Carlos realized that the last actual thing to happen was getting off the elevator on the top floor. Seeing his mother, struggling with her and refusing to destroy her had all been in his mind and that most of this talisman acquisition had not actually been done physically in the House of Horrors, because when Carlos came out of the trance he had the Ring of Envy.
The House of Horrors was called that because it made Carlos face what horrified him the most as well as making him prove to himself he was just as brave as the other three and get over any feelings of insecurity brought on by being the youngest of the four.
After Carlos came out and the four re-grouped they noticed that the magical city was melting, Carlos suggested going through the revolving doors that led inside to the House of Horrors. For lack of a better option, they took his advice and went through and just as the House of Horrors started melting itself they were transported to "Maleficent Mountain."