You have to take into consideration when this was written. He says this in Concerning the International Situation, published in 1924. So before the high water mark for Stalin, fascism and Social Democracy. What's he talking about?

Let's start by talking about the way Marxists view the whole capitalism-socialism divide, because this can be confusing. When talking about social democracy, a political-economic system where a strong government intervenes in the economy, modern audiences might be tempted to consider this as some form of socialism. Or, more commonly, a mix between capitalism and socialism. From a marxist perspective, this is wrong. The economy in which a social democratic government intervenes is an inherently capitalist one. There's a very clear line between capitalism and socialism, which makes any form of mixed economy impossible. The line's usually defined by ownership of the means of production (collective/private) and the dismantling of capitalist power structures. In essence, capitalism and socialism are antithetical to each other.

Social democracy does not collectivise the means of production, instead usually nationalising a few critical industries, but leaving the rest to private ownership. It also does not dismantle any capitalist power structures, instead choosing to work within them to negotiate concessions. Thus: a capitalist system. Enough reason for a marxist to oppose it, but why the comparison to fascism and the particular targeting?

There's a few factors that play into this. First is the debate raging among marxists about how to proceed - through revolution, claimed orthodox marxists, while revisionist marxists would claim reform. This was a big theme during the Second International, which had only collapsed ten years before the writing of the text. It was a question that was brought to the forefront during the Russian revolution and the subsequent Civil War, but also during the German November Revolution. In Russia, Stalin would've found himself in direct opposition to social democrats. In Germany, famously it was Friedrich Ebert, a member of the Social Democratic Party of Germany, who sent in the reactionary para-military Freikorps to crush the 1919 Spartacist Uprising, ending in the murder of communists Karl Liebknecht and Rosa Luxemburg and the crushing of the revolution. I can't overstate how much of an impact this had in marxist circles, even to this day.

Consider the full paragraph from the text:

Firstly, it is not true that fascism is only the fighting organisation of the bourgeoisie. Fascism is not only a military-technical category. Fascism is the bourgeoisie’s fighting organisation that relies on the active support of Social-Democracy. Social-Democracy is objectively the moderate wing of fascism. There is no ground for assuming that the fighting organisation of the bourgeoisie can achieve decisive successes in battles, or in governing the country, without the active support of Social-Democracy. There is just as little ground for thinking that Social-Democracy can achieve decisive successes in battles, or in governing the country, without the active support of the fighting organisation of the bourgeoisie. These organisations do not negate, but supplement each other. They are not antipodes, they are twins. Fascism is an informal political bloc of these two chief organisations; a bloc, which arose in the circumstances of the post-war crisis of imperialism, and which is intended for combating the proletarian revolution. The bourgeoisie cannot retain power without such a bloc.

It's hard not to imagine Stalin thinking about Ebert deploying the Freikorps when writing this paragraph.

From a marxist perspective, this cooperation makes sense. Karl Marx famously stated that the bourgeoisie (and capitalism) would produce its own grave-diggers. Capitalism inherently creates the conditions which lead to discontent, but also to labour organisation and revolution. The way for the bourgeoisie to prolong the inevitable is to grant concessions - with the social democratic carrot - and/or to crush the most organised/radical opposition - with the fascist stick. Social democracy can only dull the edge of capitalism, slow it down somewhat. By not pushing through to socialism and by not removing the capitalist power structures, those self-destructive aspects of capitalism are still present. And social democracy doesn't have an answer to this. Moreover, by leaving the capitalist power structures in place, social democracy inevitably is forced to defend them. Thus, like fascism, they become tools of the bourgeoisie.

There's more to it than this, but I'm pretty tired. Might add on to this later.