It's an armored loincloth that gives her the impression she's not wearing any underwear. A kick or a tumble and you can see everything. It's a toss-up between her and the Priest's skin-tight orange bodysuit for lewdest female design.

Early Dragon Quest games were pretty lewd, because Toriyama himself was pretty lewd. From DQ9 onward you can see everything becoming "safe" as Toriyama delegated most of the character design to his assistants.