Gosh, this problem again. Everytime I read about this.. I hold my breath and hope someone will offer a miracle answer... had same thing with my Mum this year - forgetting Dad had died and getting upset/ angry when her question 'where is he' is answered with the harsh truth. (And sometimes there's a fearful/ vaguely recollecting version: 'he hasn't died has he?') Neither reaction is nice to deal with for a grieving family, so I feel for you. In my experience it has eased off over time ... and I quickly adopted the approach recommended by others of 'no haven't seen him today', or change of subject and general fob off. Hard to deliver but effective.
Re whether or not to take your grandmother to the funeral - very difficult one. I dreaded how my Mum would react and did get a mild sedative prescribed (can't remember name) to calm her. I held her hand throughout the service, then allocated a family member to sit with her afterwards to one side while I dealt with all the condolences. But I did take her - cos she was my Dad's life-long partner and once the opportunity to send him off has passed.. and so many people gathered in support... you can't re-run it. Do you know... she was a little tearful, then subdued/ puzzled and I don't really know how but we all got through it and it felt right that Mum was there. I think perhaps she forgot almost immediately why we were all there so it didn't hurt as you'd expect. No guarantees though.
Bless your Grandma, and you all, and condolences from me.