When the story opens, the narrator is a college-aged young man: bored and into drinking alcohol and smoking weed, but essentially harmless. He and his friends are suburbanites; one goes to Cornell, and the narrator is driving his mom's car as they spend their summer partying. Greasy Lake is a place where they only go late at night to drink. It is a natural setting ravaged by the teenagers and twenty-somethings who have polluted it with their thoughtless and immature behavior.
The unexpected savagery of the physical altercation awakens something in the narrator that he did not know was in him. After he receives a few punishing kicks and sees his friends taking a bad beating, his adrenaline kicks in, and he takes a tire iron to the head of the "bad greasy character" in the Chevy. There is no thought involved as the boys descend on the girl from the car and begin to sexually assault her. The ugly, disreputable setting of Greasy Lake, and the proximity of junkies and brawlers, ignites the ugliest and basest instincts in the narrator and his friends.
When he realizes that he has not killed the "bad greasy character" with the tire iron, the narrator feels "a rush of joy and vindication." His relief at knowing that he is going to be able to walk away from this ugly episode without the crimes of murder and rape trailing him alters his perspective, likely permanently.
Turning down the invitation to party with the girls in the Mustang as he and his friends are leaving Greasy Lake signals a turning point in the narrator's character. Prior to the terrifying and ugly skirmish he just took part in, he probably would have accepted the offer of drugs. It is likely that he realizes how close he came to destroying his life in the god-forsaken setting of Greasy Lake.