What the heck is going on?what should i do?

I think him having a girlfriend is an absolute "stop right there" situation. Reverse the circumstances, would you want some girl in a different city flirting with your boyfriend? Probably not. Also, consider how good of a boyfriend he must be if he told you he has a girlfriend, but he's flirting with you. That's terrible! Why would you want to be with someone like that? I say stay away and if he tries to continue this flirting remind him he has a girlfriend and you respect her and their relationship. You were completely correct holding back the kiss! Hope this helps :)