At the end of Act One, Gerald reveals that he knew Daisy Renton, and Sheila’s suspicions of the previous summer, when Gerald wouldn’t go near her, were solved. At the beginning of Act Two, he admits the affair to the Inspector.
When Gerald begins explaining the story, Sheila or Mrs. Birling would butt in frequently, Sheila usually saying something smart, like ‘Well, we didn’t think you meant Buckingham Palace-‘. This shows Sheila’s transformation from the innocent, submissive fiancé, and she is learning more about the true extent of society and her responsibilities.
You can tell that Gerald is remorseful, but also tries to paint the picture that he was being kind. Which, in some regards, he was. Gerald met Daisy