What is a "step"?

You can move in 'steps' on the underlying grid in Pokemon X/Y by using the D-Pad for movement instead of the Circle Pad.

While I can't necessarily verify this, I have a hunch that the step counter when using the Circle Pad is indeed based on trigonometric principles - if only because if this wasn't the case, we'd see in guides everywhere to avoid diagonal movement to conserve Repels, or to move diagonally to expedite egg hatching.