He doesn't know of any connection between Rei and his mother at first. And when he realises that, he's gets frightened.
There's an ongoing neverending debate about whether Shinji really loved anyone, and even if he did, was it Asuka or Rei in the end. The general conclusion though is that at various points in the series he has been sexually attracted to all the females, including Misato.
Me personally, I think that relations between Rei and Shinji has ended at being those of sister and brother. Though some people interpret the primordial ocean scene from EoE, where Shinji and Rei are merged together, as a sign of romantic relationship.
The Reifans, who promote this view are ok with the thought of this incest and even defend it, saying that incestous relationships go down to ancient history and royalty's inbreeding practices of the Medieval age.
Judging from my experience, they suffer from a serious "Search for Deeper Meaning Syndrome", SDMS for short (СПГС in Russian) and they just love to pointlessly speculate.