What does it mean when a guy friend says "I'm flattered" after I let him know I'm interested.

Anonymous
I have been friends with a guy for about a year and half. He's a very shy guy, and I am a shy girl. I've had a crush on him for this long as well. I kept trying to figure out if he knew or liked me as well. I thought he must know, and didn't back since he didn't do anything. Then it would confuse me when he would see me out by himself that he would give me a hug to say hi and bye and his face would light up. So finally, I e-mailed him telling him I had a crush on him. (again I am very shy as well). He wrote back stating He's flattered, but he recently started seeing someone and wants to see where that goes. What does that mean?
What does it mean when a guy friend says "I'm flattered" after I let him know I'm interested.
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