Buffy thinks she knows everything about Giles' past.
It's true, in a way. She certainly knows everything she'd ever want to.
Apparently, it's never occurred to her to wonder just how he knew so much about vampire brothels. And he's been very careful not to betray that he met Spike long before either of them came to Sunnydale.
He and Ethan were lost-weekending again. Spike had lost Drusilla, and was trying to earn enough money to rejoin her. He was happy to take both men on at once, and, well…
Let's just say, the night involved more than just bloodletting.