Chuck tells Dan that they're from different worlds, and that Dan, by virtue of his middle-class stature, can't afford (in so many ways) to get suspended or expelled. Chuck, by contrast, can simply have his dad buy his way out of trouble.
Despite the efforts of Serena's evil grandmother, Dan sticks it out and wins the affections of Serena at the ball. It helped that Lily stood up for him - and herself - by swallowing her pride and admitting she'd been unfair.
[to Jenny] That's the thing. You need to be cool to be queen. Anne Boleyn thought only with her heart and she got her head chopped off. So her daughter Elizabeth made a vow never to marry a man. She married a country. Forget boys. Keep your eye on the prize, Jenny Humphrey. You can't make people love you, but you can make them fear you. For what it's worth, you're my Queen. I choose you.