Its really quite simple actually. He's crusin a club and having no luck. Then he finds this chick and has some interest...but he heard a rumor about her ("never thought i'd let a rumor ruin my moonlight"). So he goes up and asks her about it. He heard that she is either a lasbian or swings both ways. He thinks she had a "boyfriend" who looks like this chick he once dated. So he thinks that her "boyfriend" was not a boy at all...and she is a lesbian. "I've got potential" is him trying to convince her that he's bf material is she isnt a lesbian.