Steve is a pet gimp of Mr. Pickles' who lives in Mr Pickles' lair. Grandpa is the only one who is aware of his presence and his association with Mr. Pickles.
In Dear Boy his identity is almost revealed after Grandpa blocks the entrance to the lair with his lawnmower. As Steve escapes into the forest, Grandpa follows him and comes closest to unmasking him, until Steve knocks him out and disappears yet again.
In Season 2 Finale it is revealed that Steve is Grandpa's Wife, Agnes in disguise.