They had to dress up. Lily was one of the slower ones taking off her Ravenclaw robe and going up to the front of the class to play dress up. She wasn't exactly into the whole 'dress up' thing but she didn't really have a choice so she tried her best to play along and do as the teacher asked. Once she felt that she had 'dressed up' enough, she headed off with the rest of the class down to the grounds.