Why do people flirt non sexually

What is your opinion on the use of sexual innuendo (little sexually charged jokes) in flirting?
I understand that men do not use sexual innuendos with women they do not fancy, so does the use of sexual innuendo indicate that the guy in question fancies someone?
What is the desired effect of sexual innuendos? Are they meant to let the woman know that there's a sexual interest besides whatever other relationship may exist between the man and the woman? You know, like giving the woman a sign that he likes her as a female and not only as a friend/coworker/acquaintance, whatever.
Or do people use sexual innuendos because it gives them some sort of private pleasure irrespective of how the other person reacts to it?

I am asking this because I was at a party the other day and the owner of the house, which has a pool, asked me whether I had brought my swimming suit with me; I said I hadn't and he then asked me whether would I like to borrow his boxer shorts ? ... and he grinned with naughty little boy's eyes

I wasn't quite sure how to take this because, although I have always sensed that this guy "likes" me , our relation is "fool proof" since he is a very close relative of my boyfriend.
So the idea that he could actually be sexually interested in me never really crossed my mind.
But now I wonder. Was he flirting? He sure compliments me an awful lot.

To finish this, I must say that he took me by surprise so I didn't know how to react. I just stood there looking at him with what I am afraid must have been a rather stoopid looking smile on my face and that was that.

Any ideas? What possessed him?
Incidentally, his wife died last year. Could it be that he is starting to feel sex-starved?