Christmas, for Joseph, meant that God was at work on earth (1:20-21).
It strains my mental abilities to think that Joseph could knowingly become the (adopted) father of a baby who was “Immanuel” — God with us. I’m not sure he was thinking (in fact, I’m quite sure he was not) in terms of the Second Person of the Trinity, but still — he clearly knows this baby is the presence of God and will be the saving presence of God among his people Israel.
Just what he thought, I’m not sure. Maybe this:

More likely not, but what he did think was that Jesus was Immanuel.
And this is the miracle: God chose to be present as a human, not in a human, not around a human, but as a human. God became man, God became human, God became what we are and have been and always will be: dust-to-dust. Humans are born and cry and grow and learn and fall in love and experience heartbreak and acquire friends and enemies and eat and drink and age and learn and teach.
The Incarnation, the presence of God as a human, sanctifies and legitimates our earthly existence. And more: it challenges us to live in such a way that we, as Eikons of God (as Eikons who are being transformed into the Eikon of Jesus Christ), can be what Archbishop of Canterbury, Rowan Williams, has called it: “where God happens.”
We find ourselves in need of denying God’s embrace of our utter humanity: we want to say that we are only human, that we are limited, that we are sinners, that we are broken and cracked Eikons. But, this is the whole point of Christmas: God becomes what we are so we might become what Jesus is (I think that’s Athanasius). What we are: cracked Eikons; what Jesus is: perfect Eikon.
God chooses to manifest himself in limitation; it is in limited humans that God manifests himself, it is in growing and relating and loving and learning that God manifests himself.
For Joseph, Christmas meant that God was at work on earth — for us it means God is still at work on earth: and God does this through us. He summons us to be Eikons so that he can manifest the Son, Jesus Christ, to the world. We are designed to be glowing Eikons who have one purpose: to manifest God by loving God and loving others.