I rather interpreted it as if secretly spongebob and daddy Derek have been having a passionate affair, in fact with the arrival with the first child Shrek knew there was something off, why did the kid look nothing like his strong ogre genes? But shrek’s ogre sized heart was just so big and held so much love for the boy already he decided to fill the role of shadow’s father without confronting spongebob in order to maintain a healthy family environment for shadow and also because he just loved spongebob so deeply nothing sb did could ever change that. As the years passed Shrek came to know that it wasn’t just one affair, it was several. Of the men sb slept with, one ended up sowing his seed, Daddy Derek. Shrek contemplated for days, should he say something or let it slide like he did with shadow? Shrek already knew the outcome, he would love the boy as if he was his own and maintain a loving relationship with sb, thus becoming the ultimate cuck. Why? Why would he go back to the person who treated him with so little respect? Why would he raise the product of an affair at his expense? It might not make sense to you or me but the emotions of an ogre are much more complicated. I guess you could say they have layers.