A step deal is when a producer and writer agree to develop a project together but do so in “steps.” For example, if a development executive likes your pitch but is unfamiliar with your work as a whole, she may ask that you work out a step deal. After agreeing upon specific milestones and compensation, she'll ask you to write a treatment. Once the treatment is complete, you'll be paid for that step and the producer will decide if she wants to hire you for the first draft, or let you go and bring in another writer. The same will happen if you're asked to write the first draft, second draft, revisions, or whatever the designated steps might be.
A timetable may also be built into a step deal. If you turn in the treatment but then don't hear from the executive for a specified length of time (either to move forward or you are told she is going on without you), the rights may revert to you, and you'll be free to take the treatment elsewhere.