one explanation (spoilers!)

You might find this farfetched, but it's one way to interpret the story: John and Laura Baxter are understandably very sad because of the death of their daughter. In the beginning, it is Laura who seems most visibly affected by the loss. John, on the other hand, is repressing his sorrow and emotions. He goes about things in a more typically masculine, rational way, even though he's experiencing a lot of inner turmoil. His wife later joins two more ladies (more feminine figures) and tries to look at the invisible presence of the dead daughter, while John refuses to acknowledge such a thing. He'd rather move past the loss. But it's there, inconveniently so, and the ladies around him keep reminding him. After their son gets hurt in school, Laura leaves the scene and John is left alone. He always thought he was the more stable person in the relationship, but perhaps it had been the other way around. Laura's absence creates some kind of unbalance in him, which is perhaps reflected in his near fall off the scaffold at the church. There's a crisis. By the time he meets up with the two old ladies, he's begun to open up and get in touch with the terrible feelings he's been holding inside. It all happens too abruptly, violently, rather than in a more gradual, healthier way. This reaches a climax in the end, when he encounters the figure that resembles his daughter – but rather than a beautiful, innocent child, he finds a wrinkled, creepy, disturbing woman. That she's dressed in very intense red suggests the very strong emotions that he had repressed and held up inside. Subconsciously, he never really let her daughter go and that's why she looks old. It's very much like a dream.