Viola has successfully disguised herself as a man named Cesario. Her success with Orsino has been so great that she is now a favorite with Orsino who believes Viola to be the man named Cesario. As such, Orsino entrusts Cesario (Viola) to express his love for Olivia. Cesario, (Viola) deeply divided by her own love for Orsino, nonetheless dutifully represents Orsino.
Olivia's maid is angry with Feste, Olivia's Clown. Feste redeems himself with Lady Olivia by telling her she should not mourn her brother since he is in a better place, namely heaven. Olivia is pleased, but Olivia's uptight steward, Malvolio is not, regarding Feste as old and lacking in wit.
Olivia gives us an insight into Malvolio's character by saying that he suffers from self-love or is arrogant and vain.