How does James set up the narration at the beginning of the story?

Basically the story starts conventionally enough with friends sharing ghost stories 'round the fire on Christmas Eve. One of the guests tells about a governess at a country house plagued by supernatural visitors. But in the hands of Henry James, the master of nuance, this little tale of terror is an exquisite gem of sexual and psychological ambiguity. Only the young governess can see the ghosts; only she suspects that the previous governess and her lover are controlling the two orphaned children (a girl and a boy) for some evil purpose.