it’s steve’s last desperate attempt to cling to his heterosexuality, plus by telling danny about it before actually asking cath he’s gets to gauge his reaction
danny’s completely manic, borderline-hysterical response is the best he can muster to mask his devastation but steve is such a dumbface that he takes it as confirmation that danny isn’t interested in him anyway.
something will happen and Steve won’t be able to go through with it. he’ll finally confess to Danny that he’s really in love with him and Danny will surprise him by laughing hysterically and then confessing he loves him back, “you goof! We’re idiots! Idiots!” and then they kiss