I did not watch the entire movie, but judging just by the scene, she seems to impersonate the desperation of the situation.
The squad seems to be tied down and wounded in a desolate building surrounded by enemies. The lady just has enough of it and makes a walk for it.
Is she mentally ill? Maybe, worn out by the siege situation. She simply blends out the inevitable and acts as if the destroyed city around her was still alive. It is a stress reaction.
Everybody else is just too busy and desperate to take too much concern of her dressing up and leaving the building. What does it matter anyway? Everybody knows that they are doomed.
Then, when the lady leaves the building, the viewer is left in hope. Maybe the germans wont see her. Maybe they will spare her for obviously being an unarmed, helpless civilian. But then she is shot. Not once, but by a barrage. Cruely left to die on the street. Nobody helps her, not even her allies in the building behind her.
Why not shoot back? Because it is actually quite hard to spot a shooter in an urban situation. This is further emphasized by the shooter not being shown on screen.
What was already desperate before is now even worse.