They were driving and just joking about how they both kind of fucked each other over (though technically I still think Mako/Asami happened AFTER he and Korra broke up in season 2). It wasn't handled seriously, just like when Bolin caught Korra/Mako and ran off. Mako didn't do anything, nor did he feel bad. Then when Mako and Korra finally broke up at the end of season 2 for good, Mako is pouting and Bolin has to try and cheer him up. WTF. 

It's like Korra has to be the center of everyone. She got with Bolin (kinda) then Mako and then Asami? Fuck, I wish I had my Tenzin/Korra moment, seems like that should have happened too, considering how things were going there...

The fact is, Korra was a sheltered person. But that fans say she's a teen, hence why she's thoughtless, is BS. She knows right from wrong, as should Mako. The more I think about it, the more I do like season 1, I just wish the choices and conflicts had carried over. I mean Korra was at her lowest point at the end of season 1, then again at the end of season 2...and yet we don't see the doubt resurface because it's somehow always resolved the way personal issues with Asami are ignored for some reason. :/