In the finale of Season 3, Mr. Sheffield finally tells Fran he loves her. They were on a plane back from Paris, and some turbulence made them believe the plane might crash. Thinking this might be his last chance, Max tells Fran he loves her and they kiss.
In Season 4 episode 1, they have survived the flight and Max regrets telling Fran he loves her. He explains that he only said it because he thought they were going to die, and that he didn't mean it. Rather than outright taking back I Love You, Max says he takes back what he said. Fran responds, sadly asking if he is taking back "The Thing". From that point, The Thing becomes code for talking about the situation.