。
She decorated the dress with flowers.
Literal
She [topic-は] dress [object-を] flowers [with-で] decorated.
で here marks the means or instrument — the flowers are the tool of decoration, not the location. 飾る covers both decorating an object and adorning a space, so the construction has to disambiguate by particle: 部屋に花を飾る (decorate the room with flowers, location-に) versus 花で飾る (use flowers as the decoration, instrument-で). Same verb, different particle, very different image.