How am I related (if at all) to this person?

Shannon is a grand-niece to your grandmother. Unless both Shannon and the grandmother don't want to have that type of relationship, it would be best not to argue otherwise. Your grandmother was probably only leaving the possibility of a relationship between you and Shannon open, not denouncing her as a relative. Relationships are not determined by blood alone as marriages often establish them just as strongly, especially with aunt & uncle combinations. Pursuing a romantic relationship with her is fine, both legally and morally. In most states, even 2nd cousins can marry whether related by blood or marriage. Your only real obstacle is Shannon. Hopefully, she was laughing off the being related question and not the implicit one so good luck with that.