Yes but you do not take your daughters only pretty party dress and sell it no matter how hard up you are. That is cruel. Her mother also did the same thing to a cookery book my mum was given as a present. It would seem that her mother resented her daughter being given nice things... I suppose she felt ashamed that she could not provide such nice things for her daughter so if she could not then nobody else would because it would be embarrassing that her own mother who should be buying her daughter a pretty party dress was too hard up. I suppose she felt that it seemed like charity and she was proud and felt that no daughter of mine would accept charity and if I cannot provide for my own family then we go without.From an outsiders point of view it would appear your mum built her own ideal world in her mind, probably as a way of coping with all the hardship that came from 5 children, a mother run ragged from work all hours and no father.
Everything was measured by her perfect ideal world, anything found wanting was disguarded. Your father probably found it easier to take a path of least resistance. Her own family were measured up against her ideal world and rejected. Perhaps she made up her past and seeing her sister meant she couldn't pretend when faced with someone who lived her past.
I agree about the dress but very strange that your mother didn't realise what had happened when she became an adult.