Germany had effectively won WWII. Mainland Western Europe had been conquered, and there was no significant threat to Germany. But then they declared war on Russia.
Could Germany have defeated Britain? There are two arguments, one being that (provided she was supplied from her Empire and the US) Britain could go on indefintely as the Royal Navy was by far the Superior to Germany in terms of manpower, ships and (probably most important) experience. Britain had effectively dominated the waves for most of the last half a millenium, and there was no way that Germany could catch up that quickly.
The other argument is that when you consider just how much manpower and equipment was thrown against Russia, you have to suppose that if Germany had thrown everything against Britain with mass drops of parachutists combined with a seaborne assault along the Eastern and Southern coast of England and Scotland that a crack would have appeared. It would only take one or two succesful beachheads to have signalled the beginning of the end. It would no doubt have costs the lives of tens/hundreds of thousands of German lives lost, but when you consider the losses at Stalingrad alone you see just how vast were the manpower resources at Hitler's command.
The danger with Hitler carrying out an all-out assault against Britain would be leaving him (relatively) defenceless in the East against Russia, so he probably (and possibly rightly) considered a land-based attack against Russia to be more likely to succeed than an aerial/naval attack against Britain. Once either of these two foes were eliminated, the other would face the full force of Germany and almost certainly fall.