Can someone explain this scam?

You can, and should, still report him. Processing reports on already-marked scammers is a lower priority, but all pending reports are reviewed before granting an appeal, so a scammer will have to answer for those if they want to get unbanned.

Here's how the "trusted friend" scam works in general:

When they convince you to trade the items to a "trusted friend" for some made-up reason, they then impersonate either you or your friend from an alt account by changing the name and profile picture, and invite one of you to trade. This is either from a group chat, or by convincing the friend to accept a random friend request (who changes their profile after added). So if you follow through, either you end up trading your items to someone who copied your friend's profile, or your friend trades them to a copy of your own profile when they "call off" the deal. They then both disappear, changing the impersonator's name/avatar, and move onto someone else pitching the same story. If you call them out on it, they'll try to rush your friend from an account impersonating you, and then run off. In a nutshell, it's just a more elaborate impersonation or middleman injection scam. Here's an example report we accepted for that exact scam: http://forums.steamrep.com/threads/report-76561198148924318-tf2-team-fortress-2-items.77369

This is why in any middleman transaction, the person holding the items should always be the one to initiate the trade, from their friends list (not a group chat), and that person should not accept any incoming trades until they've already traded the items they were holding. We don't recommend acting as, or trusting, a middleman who isn't certified by the community, for many reasons, but if you have someone you truly trust and insist on using, then at a bare minimum please remember to make sure the person holding the items is always the one who initiates the trade, and they take the time to make sure they're trading with the right person. All legit middlemen should know this. Reference.

Never trust a SteamRep link given to you in chat. You should check that info yourself. To get someone's SteamRep information,

1. Visit their Steam profile.
2. Right-click the page and select Copy Page URL.
3. Go to SteamRep.com.
4. Paste their URL into the search bar by right-clicking, and selecting Paste

I'll bet he just copied the middleman's name and profile picture, which they do all the time, and gave you the real middleman's SteamRep link instead of his own. It's real easy to change your name and profile picture to the same as a middleman, then copy/paste the real middleman's SteamRep link into a chat. Did you get a screenshot of the chat, or by any chance their profile with the URL visible? Did you make a trade with the "trusted middleman"?

If I had to guess, unless you initiated a trade and didn't mention it here, you got a virus from somewhere. There's a thing with fake image links going around, where it looks like a real picture but if you try to open it then it trades all your items away and sends the same link to everyone in your friends list. Check your trade history: hover over your name in the Steam window, and click Inventory. Then click More -> View Inventory History. If you see a trade you don't remember initiating, you probably got the virus, in which case you should run your anti-virus and fill out a ticket with Steam Support.

Custom URLs and Steam names can both be changed from your profile settings. Your SteamID64 and SteamRep URL cannot be changed, however.