Dylan took a break from work to go smoke in the alley. Eventually, Emily walks up to start her shift at work, when she notices Dylan smoking.
Emily knows Dylan smokes, but she was concerned for him, and she has been putting off this conversation. Instead of ignoring the situation she finally spoke up. Much to her surprise Dylan got angry, which he has never done before.
After Dylan's reaction, Emily assumed he did not care about how bad cigarettes are, so she just went inside. But, what Emily did not realize is that Dylan knows the danger of cigarettes, he just does not want to stop.