We know from the Qur’an that God has not made it obligatory for women to cover their entire bodies, including their hands and faces. Therefore, if the cited hadith is authentic, it should be understood in a manner that is consistent with the Qur’an.
In that light, the hadith would mean that a woman should dress modestly and cover herself appropriately so that she is recognized as a respectable and honorable woman. This was particularly relevant in the social context of that time, when slave women and maidservants dressed differently, and some mischief-makers would target women whom they perceived to be vulnerable or easily accessible.
Thus, the instruction should be understood as a contextual directive to ensure dignity, modesty, and protection from harassment, rather than as a universal command requiring women to cover their entire bodies, including the face and hands.