Nouns referring to people older than yourself are treated as if they were plural as a show of respect. This is the reason वे and हैं are used.
वह मेरी दादी है is grammatically correct but would be seen as rude. (As a personal anecdote, I use तुम while talking to my grandparents because that is how things are done in my family but I would never use the singular form while talking about them in the third person).
Also, though it is pronounced वो, वह is the correct written form. ,