Orsino, sending Cesario (Viola in disguise) to woo the Lady Olivia, tells him (her) that he (she) is very like a woman, and therefore will be more appealing than he would be.
Malvolio reads from the letter that Maria wrote. He thinks it's from the Lady Olivia and thinks that the greatness of being the Lady's husband is about to be given to him. (Later Malvolio repeats (3.4.41-45) this line to Lady Olivia, and towards the end of the play the Clown mocks Malvolio by repeating (5.1.370-371) it again.)
Lady Olivia, having failed to wring a confession of love from the beautiful boy, Cesario (Viola in disguise), says that at least she has nothing more to worry about, but realizes that she's grasping at straws.