It appears that Harper and the Conservatives think they can improve their standing in the House of Commons. They are a minority government. That means that although they got more seats than anyone else, they don't have 51%. When they offer certain pieces of legislation, it is a matter of confidence. If the legislation doesn't pass, it's considered evidence of no confidence in the government. The budget is one such matter. Complicating this issue, one of the Conservative ministers has been charged with contempt of Parliament, and the Conservative Party in general has been found to be in contempt of Parliament for releasing false numbers about the true cost of their budget. Ignatieff, the leader of the Liberal Party, hurried to vote no confidence on the issue of contempt of Parliament rather than the automatic no confidence vote for failing to pass the budget, in order to taint the Conservatives with the contempt of Parliament issue.
Regardless of why it is voted, if the House votes no confidence in the government, the PM has to go to the Governor General to ask for a dissolution of Parliament, after which there will be an election.
Harper wanted this election. Because why? Because he thinks that he can improve the position of the Conservative Party even if he can't get a majority. I say this because there was a matter of some two billion dollars for Québec, which Harper promised, publicly, to hand over, but which he refused to put it in the budget. If he had put it in the budget, the Bloc would have voted for the budget, and there would have been no automatic no confidence vote. So Harper definitely wanted this election, because he deliberately avoided taking action which would have passed his budget, no question.
I think he was kind of blind-sided by this contempt of Parliament issue, but i don't think he's frightened by it. He's an arrogant bastard, and he'll confront the issue and try to turn it against the Liberals.