I just wanted to know is it considered sexual harassment if witnesses saw the harassment happen and were offened by it but the harassee doesn't take it seriously. Witnesses reported the harassment, but when the investigation came around and the harassee was questioned, the person denied anything happened. The harassee just said that the harasser was "playing around". The witnesses were very offended because this is a place of business and this type of behavior should not be taking place.

If someone feels "uncomfortable" by what others at work might say or do, it is important to let that individual know that they are being offensive and that they should stop the behavior.

The harassed may be afraid to speak up, but if others feel the behavior created a hostile work environment, they are victims too and can make complaints for having experienced a hostile work environment. The harassed may be afraid of losing their job if they speak up.
FYI sexual harassment in the workplace
http://www.employer-employee.com/sexhar1.htm

There is such a thing as third-party harassment, where someone witnesses something they find offensive but are not actually involved in the situation themselves. They can follow the same procedures for reporting it as if they were harassed themselves, and they are entitled to the same protections.