I'll try to keep this simple: it's clear that Isabella is a hallucination of Tony Soprano. But when Tony is looking out of his window and caught by Carmela, she looks outside and asks "Who is she?" and they argue, despite the neighborly doctor later refuting that any Italian exchange student was at his home while away.
So, how does Carmela see what is made clear to the audience, a hallucination? She is the only one other than Tony who appears to recognize her.
Re: How does Carmela see Isabella?
2Perhaps Tony was dreaming that Carmela saw Isabella and threatened to castrate him?
Hmm...
Hmm...
Re: How does Carmela see Isabella?
3At the end of the episode it's made clear Tony also dreamed that. He has a conversation with Carmela and she says she "never threatened to cut his xxxx off" and then calls Melfi and tells her Carmela is angry that he has told her about this "fantasy".