If she looks classy and likes the outfit, I usually say, "you look great! " but, if I can see a nipple or her ass is hanging when she bends over or it's too tight or revealing I'll say, "it makes you look fatter than you really are" or "that requires a bikini wax to wear " if it looks trashy I say something like that. She does the same for me and I am grateful for it :)
"I don't think that shirt goes with those pants.. maybe try something like ____." Then she can do as she pleases. I would want someone to tell me if what I was wearing looked funny (in a nice way though) so I do so for others.
If my friend's personal style is different than mine, I usually just say it's not something I would pick out but it looks good on them. Now if she looked heavy or it was inappropriate for the occasion then I would suggest another outfit.