Yes, I know, the story calls her Grandmother so she has to be Red’s grandmother. The story is always right about such things. I can’t just say that’s not Red’s grandmother for no good reason. But I have good reasons. Honest.
So, everything about grandmother living outside of town in the wilderness is the first part of this. A blood relative would be living inside the village, most likely inside the same house as Red and her parents. Generational living has long been a thing in Europe.
The next part comes from a bit of history. During the Middle Ages, villages often had a wise woman, someone who knew how to use herbs, tend the sick, and act as midwife. These were solitary women who lived alone, almost always outside the village where they could get at their herbs. They were outcasts from society, but also highly respected.
While some times they were called Wise Woman or Wisdom or some other title, many times they were given the title of, wait for it, Grandmother. It was a title that denoted the wisdom of their age, and that they should be obeyed implicitly.
These women were targeted heavily during the witch trails of the Protestant Reformation, which swept through Germany particularly fiercely. They made for easy targets living outside of town and possessing knowledge no one else had. Their age also made them susceptible to the image of the old crone that frequently stereotyped witches.
This idea also explains why Red is remarking on the physical features. She may have never seen Grandmother before in her life. If related by blood, Red and Grandmother almost certainly would have had contact with one another over the years. But the wise women were only sought out when there was need for them.
So there it is, Grandmother is not a blood relation to Red. This will have interesting effects on the rest of the story, which I’ll get to later.