When Sydney was apparently killed in a fire a few months later, a heartbroken Vaughn left the CIA and found work as a French teacher.
Once he discovered that Sydney was still alive, Vaughn returned to the CIA and quickly saw his feelings for her reignite, a fact that caused a great deal of tension in his marriage to Lauren.
Her 'confession' is ambiguous as she does appear to have developed feelings for Vaughn, as is evident by her reaction to Sark's earlier observation that it killed her when Michael dropped his gun, which was trained on her, to save Sydney.
Following Lauren's demise (and between the third and fourth seasons), Vaughn appeared to go into an emotional tailspin that culminated with him setting fire to his own house.
In reality, Vaughn had been recruited into a black ops division of the CIA called Authorized Personnel Only (APO), along with Sydney, Jack, and Marcus Dixon (Weiss and Marshall Flinkman would soon follow).
The first season established that Michael Vaughn's father was one of several CIA agents killed in the line of duty by Irina Derevko, Sydney's mother.
Vaughn's subsequent investigation led him to conduct a secret mission in collaboration with Sydney; he turned rogue by the end of the episode "Nightingale".
At the end of episode "Maternal Instinct" (#5.11), it is revealed that Vaughn is still alive in Bhutan living with monks connected to the outside world.
In the episode "I See Dead People (#5.14) the information is revealed only to the other members of the APO team when they recover a chip from within Renée Rienne and Vaughn is forced out of hiding by Anna Espinosa, who is posing as Sydney.
In the series finale, Vaughn participates in a wide variety of missions to bring about the fall of Prophet Five, Sloane and Irina.