A pivotal episode because the relationship between the main characters would never be the same again. The running gag of Niles having a crush on Daphne turns into an important plot line. (There were some earlier episode in which Niles nearly admitted his crush. They could be quite touching.)
I can imagine that the writers wondered for a long time how they would handle this. Should they resolve the problem or keep it a running gag, a bit like Maris not being shown? Or have the characters face the situation? They chose the latter, but did it in a funny way. No sentimental confession, just hilarious confusion. What made Frasier so exceptional, was the clever, fluent structure of the plots. Just look at this episode.