Its part of the Dementia. In her mind she is talking to someone that is there. My Mom, it was a little girl. She would tell her to stop doing something. The little girl disappeared when I entered the room.
You do the same. I do it too. Everyone does it. The difference is you and I do it all in our heads. Some people, particularly the elderly, no longer have that restraint and do it out loud. People talk to themselves all the time.
https://www.dementiacarecentral.com/aboutdementia/facts/stages/
Best of luck!