The dancers were dressed beautifully.

Literal

Dancers [topic-は] beautifully were-dressed-up.

美しく is the adverbial form of 美しい. 着飾る is a compound verb: 着る ('wear') + 飾る ('decorate') = 'to dress up / adorn oneself.' A productive pattern where 飾る intensifies another verb's sense of elegance.