The Dishonored One's sister is a NPC that only appears when the Dishonored One is defeated. She talks to the player, gives them Draconian Armor, and leaves.
The Dishonored One's sister was a Teacher, a being of powerful magic which shares its knowledge "for the benefit of all". That is, all except her brother, the Dishonored One, a Teacher that hoarded all of his secrets, and was cast out of the ranks of the other Teachers for it. The Dishonored one then went into hiding, only telling his sister of his whereabouts.
After the return of the Dishonored One, she was sealed away by the Dishonored One, not killed because of their shared blood, even though there was "no love" between them.
After the player defeats the Dishonored One, his sister returns, and tells the player of the Dishonored One's deeds, showing some amount of sympathy and understanding, as she gives you the Draconian Armor for you to use, remarking that "Perhaps my brother wasn’t entirely crazy when he refused to share our teachings". She then leaves, hoping to find other Teachers who survived the Dishonored One's attacks.