What happens if I activate a product key on Steam for a game I already own?
if you have the key then why don't you just give it to someone else instead of using steam to send it? Anyway, Steam games that you own will not need to be activated again so just give the key to a friend of yours.
I agree with corroded that you should just give them the key, but to answer your question:
If you purchase a copy of a game you already own, you may or may not receive a giftable copy to give to someone else. According to Valve, the only cases where you get a giftable copy are:
Users who own Left 4 Dead and then go on to purchase "Left 4 Dead + Left 4 Dead 2 Bundle" will receive an extra copy of "Left 4 Dead"
Users who own Half-Life 2 and go on to purchase “The Orange Box” or the "Valve Complete Pack" will receive an extra copy of “Half-Life 2”.
Users who own Half-Life 2: Episode One and then go on to purchase the "Half-Life 2: Episode Pack”, “Valve Complete Pack” or “The Orange Box” will receive an extra copy of “Half-Life 2: Episode One”.
Users who own Dawn of War II and then go on to purchase "Dawn of War II Gold Edition" will receive an extra copy of "Dawn of War II"
Users who purchase the available four packs for specific Steam titles will receive three extra copies of that title to gift to friends.
Extra copies may apply as a part of some limited time promotions. In that case, information on what will be included with your purchase will be listed on the storefront's transaction page.
When trying to activating a Game you already own (or a bundle you already own parts of), Steam will warn you in a popup which game/parts won't be added to your library. You then have the choice to cancel the activation.
It really depends on the game. Even for Valve's own games, only some allow giftable copies: Half-Life 2, Hale-Life 2: Episode 1, Left 4 Dead, and Left 4 Dead 2.
For non-Valve examples: I should own the game Overlord twice, as I picked up one copy when Overlord was on sale and one when the entire series was on sale (for cheaper than I could buy Raising Hell and Overlord 2 separately).
I never got a giftable copy of it.
Conversely, I got a giftable copy of The Secret of Monkey Island: Special Edition when I bought Monkey Island 2: LeChuck's Revenge Special Edition as the second game's preorder bonus.
You're better off just giving them the key, like corroded suggests and avoiding the ambiguity.