After Life - S6-E3
Visible crew/equipment: When Dawn is possessed by the demon and breathes fire in the magic shop, in the bottom right corner of the screen in one of the shots, a metal tube can be seen blowing fire onto the set when it should be coming from Dawn's mouth. A hand can also be seen holding a blow torch, igniting the tube and then quickly pulling out of shot.
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.