With most of Lynch's work I don't think there isn't a definitive meaning to the whole piece.
I personally took it as study on identity, both how an individual sees their self and how others see them.
The first section of the film has two female characters acting out one point of view, then after the song they swap roles.
My take is the first section is an in universe delusion with each character playing out a projection of the other character's true role and the second is the in universe reality with the characters playing their true non-idealised self.
But Lynch wants us to make our own minds up.