Accurately describing excited states within Kohn-Sham (KS) density functional theory (DFT), particularly those which induce ionization and charge transfer, remains a great challenge. Common exchange-correlation (xc) approximations are unreliable for excited states owing, in part, to the absence of a derivative discontinuity in the xc energy (Δ), which relates a many-electron energy difference to the corresponding KS energy difference. We demonstrate, analytically and numerically, how the relationship between KS and many-electron energies leads to the step structures observed in the exact xc potential in four scenarios: electron addition, molecular dissociation, excitation of a finite system, and charge transfer. We further show that steps in the potential can be obtained also with common xc approximations, as simple as the LDA, when addressed from the ensemble perspective. The article therefore highlights how capturing the relationship between KS and many-electron energies with advanced xc approximations is crucial for accurately calculating excitations, as well as the ground-state density and energy of systems which consist of distinct subsystems.