Lynne is standing in front of the mirror. She says that she read somewhere that an hour glass figure is going out of fashion. George, who has been watching, says it isn't with him. He kisses Lynne and says that her figure is perfect in our glass.
Lynne's mind is going. She knows she read about an hour glass going out of fashion somewhere, but she can't remember where. She has been standing in front of that mirror for an hour trying to remember. During that time, George has been standing in the shadows, waiting for his moment to reveal himself.
Due to the pronunciation of the word 'hour', George has misunderstood Lynne's statement. When he is spotted he tries to redeem himself and does well initially until his final comment which doesn't really make sense to Lynne who thinks he means hour glass.
What George actually means is that in their mirror, Lynne's figure looks good. What he doesn't mention is that in real life her figure isn't that good and that he had bought Lynne's mirror from the hall of mirrors at the local fair. He is lucky he didn't buy the massive head mirror. That would have really freaked Lynne out.