Harry is allmost incapable of backing off because someone dangereous tells him to do so and threatens with physical violence. Who has done something along those lines? Ferrovax at Biancas party sort of did it, but he was not really standing between Harry and anything Harry wanted, except maybe Harry's wish to make fun of others (as I remember it). Odin did something a bit like it when Harry wanted him to stay and he did not have time. Maybe the most apt comparison is when Harry starts badmouthing Hades family and Hades tells him to stop. As I remember the scene Harry stops because he recognises it is impolite, but also because he recognises that Hades is a really dangerous god. These are the sort of really dangerous "people" Harry respects/fears enough to not make fun of. But if Harry thought the right thing to do would be to stop what "they had going on" I think he would try. Some of the very dangerous "people" he does not stop making fun off includes Hugin and Mugin. Someone he does not shy away from screwing things up for when he thinks it is the right thing to do is the Blackstaff. Just to pick two examples from BG.
So to me, it is clear that Harry does not refrain from making a joke or from stopping what Butters has going on because of Butters "sincere willingness to commit violence" and ability to do that, because that would make Harry think Butters is more dangerous than pretty much every villain in the series untill now which would be ridiculous.
As a result I read it as Harry is impressed that Butters can make that sort of statement in that way and happy that his friend has grown. He respects him as a person and thinks they are all mature people who seems to have found some love, boink and let boink as he puts it in the park with Titania, so he has no reason for screw it up for him.
So of course Butters can sincerely threaten Harry with physical violence, it is just that it does not have any effect on what Harry does after that other than it has conveyed a sincere wish from a friend to not do something.