Continuity mistake: In the previous episode, Empty Places, Kennedy had a cut across her nose and two more between her eyebrows in the last scene. In the first scene of this episode, which takes place a few minutes later, the cuts are completely gone.
Continuity mistake: This episode takes up exactly where the previous one (Empty Places) left off. Anya now has curly hair, but she had straight hair at the end of Empty Places.
Continuity mistake: Anya's hair changes from straight in the previous episode to curled in this one, even though it is set directly after.
Chosen answer: Angel is saying that he is still jealous and Buffy recognizes that this is his way of saying he wishes that they could be together. That is why they both smile.