If you are strictly steeping the grains, using only crystal malts and/or roasted malts, then the quantity of water doesn't really matter all that much. It's like making tea- you are extracting color and flavor from the steeping grains and the ph doesn't really matter very much.
If you are using some other grains, though, that should be mashed (munich malt, vienna malt, carapils, flaked barley, etc), then it's important to mash with 1.25-2 quarts of water per pound of grain, and keep it at a steady mash temperature.
The confusion comes in with partial mashing- you can actually put the crystal malt, munich malt, and carapils (for example) in a grain bag, and steep it at 153 degrees for 45 minutes. That then actually makes it mashing- because the starches will be converted to sugars during the process. If you steep a grain that must be mashed, you will have a starch haze in the finished beer.