Translation:Does grandmother sleep?
Context would be key but it would more likely be asking if she is asleep
I'm a little confused... Do we use honorifics when we are talking about the person as well? Like, in this sentence, could I use a less formal speech if I was only talking about grandma, and not with her?
The formality of the speech depends on who is listening to you. If someone older or socially higher is listening, then regardless of what you say, you have to use formal speech. Honorifics depend on the subject of the sentence, so if you are talking about someone older or socially higher you use honorifics. If you are talking to a child about your grandmother then you can use lower formality but you have to keep the honorifics. Likewise, if you are talking to your grandmother about a child then you use high formality but don't need to use honorifics.
Use high formality when you are talking TO someone older.
Use honorifics when you are talking ABOUT someone older.
You are fine to use low formality with high honorifics and vice versa depending on the situation.