Well...Karen had been looking for a place to stay and found a place down the street from Jim and he expressed concern that it was too close to where he lived. So, obviously, she was upset. Pam intervened and talked to Jim and he ended up telling Karen to get the place down the street. BUT, later, you see Pam crying and baically breaking down. I guess it finally hit her that Jim had moved on and she had lost her chance(which I'm sure we all know that's not the case).