Translation:Though she is little, she is beautiful.
Word order in danish is quite difficult. In this case I'd say since selvom is a conjunction that we're in the inversion case of "circumstances", so the main sentence is the first one and the second one gets inversion being a subordinate clause for circumstances, but I'm completely unsure of this interpretation even though I have my grammar in front of me.
My take on this is that each time there is a sentence with two clauses, the second clause gets inverted.
"Selvom hun er lille,..." - Main clause (or first clause)
"...er hun smuk." - Subordinate clause (or second clause)
The subordinate clause serves as an element to the main clause, which is why it gets inverted.
Hope this makes sense.
The same can be said about English: http://ell.stackexchange.com/questions/24791/which-one-is-correct-my-little-brother-or-my-smaller-brother
(also, it's one word: lillebror)