Clothing in the future country of Panem is based on the District. The Districts closer to the Capitol are wealthier, and so have stronger, cleaner, and more fancy clothing. The further Districts, like District Twelve (where Katniss is from) send almost all their production to the Capitol in exchange for barely enough food and energy to survive, and so their clothing is worn, dirty, and often-repaired instead of discarded. This shows the influence of the harsh government control; since all production is seized and distributed by the government, there is no way for the poorer Districts to better their own lives except illegally -- for example, Katniss hunts outside the perimeter fence to provide for her family.
Today [Madge's] drab school outfit has been replaced by an expensive white dress... Reaping clothes.
"Well, if I end up going to the Capitol, I want to look nice, don't I?"
(Collins, The Hunger Games, Google Books)
In contrast to the Districts, where clothing is functional, the Capitol is made up of the wealthy elite who feed off the working poor. Since they have a military structure to forcibly take production from the Districts, they can afford to create unusual clothing in various fashions. Fashion in the Capitol is a thriving business, with a whole class of designers who do nothing but create strange, eye-catching clothing. Essentially, fashion decreases as the working class increases, and functionality increases as the elite class decreases.
Like in our society today, clothing in The Hunger Games was looked at with a view related to class. The classier your clothes, the more well off you were thought out to be, and vice versa. Take for instance Katniss, whose clothes were always that of the poor. Unfortunately, these stereotypes and judgements are made in society way too often.