A major theme in Much Ado About Nothing is "appearance versus reality," and there is no better setting and occasion to develop this theme than a masquerade where everyone is masked. Everyone, it seems, is on equal status. Otherwise unmasked, Don John (a bastard) would have no clout, since his status is so low.
In this scene Don John is appearing to be honest. That's irony number one.
Irony number two is that he knows Claudio is Claudio, but he pretends to address him as Benedick:
Are not you Signior Benedick?
Signior, you are very near my brother in his love:
he is enamoured on Hero; I pray you, dissuade him
from her: she is no equal for his birth: you may do the part of an honest man in it.
With Don John gone, Claudio removes his mask and says:
Thus answer I in the name of Benedick,
But hear these ill news with the ears of Claudio.
Irony number three is: why does Claudio answer in the name of Benedick? Is he jealous of Pedro, or does he really not trust Hero, or both? As most men were distrustful of women (a glaring double standard), maybe Claudio wants to hear gossip about her just to give him a reason to dump her. As a vice figure, Don John knows all this.
So, Don John is pretending to not recognize Claudio because he wants to bait him with lies about his brother Don Pedro wooing Hero for himself in order to create animosity between Claudio and Pedro. Instead of playing matchmaker, Don John, out of spite, is trying to be a breaker-upper.
He wants to hurt both Claudio and Pedro by using a female's reputation against their own. So, if Hero is of low reputation, then no one will have her for a wife and everyone will be unhappy, just like him. Misery loves company.
You see, a bastard (see below) will do anything to create strife, even if there's no goal or advantage gained. Don John's evil comes from having no father and, thus, no status in a society that only looks favorably upon sons with fathers. Name, status, reputation were the only things that mattered to men at this time.
The BASTARD: the dispossessed son, he burns with resentment. He can’t have what he wants, so he lashes out to hurt those around him. His deeds are often for effect – he wants to provoke action in others. He proudly announces his rebellious dealings. Don’t be fooled by his boyish demeanor – he’s a bundle of hate.