Regarding the dress and Lilly knowing it's color: She wasn't always blind, so it's not unreasonable to assume she knows what colors are what. Sure, she was young, but colors are one of the things that children remember the best because of how straightforward the concept is. Water is blue, the sun is yellow, darkness is black, and apples are red. As for the style, she likely felt the fabric and got an idea of what it looks like, thus she determined it would look good on Heath.