Buddy's cousin Queenie is crying so hard because she's just been given an almighty great telling-off by two of Buddy's relatives. They're angry at Queenie for giving Buddy, still only a youngster, some illegal whiskey she'd bought from the friendly neighborhood bootlegger, Haha Jones. Buddy's relatives are furious that Queenie would do something so incredibly foolish and irresponsible.
The truth is, however, that Queenie's somewhat naive about the ways of the world. Though an adult, she looks at the world through the eyes of a child and so naturally doesn't understand how she's done anything wrong.
What she finds particularly upsetting about her impromptu dressing-down is the offensive language that Buddy's relatives used. They said she must be a "loony," implying that she has serious mental health issues. This makes Queenie feel very sad, because it clearly implies that she's no use to anyone. As she tells Buddy, she feels too old and funny (funny meaning peculiar, of course). And this is all because of the hurtful words spewed out at her by Buddy's relatives.
Technically speaking, it was wrong of Queenie to give alcohol to a seven-year-old boy. But Buddy's relatives massively overreacted in giving her a good talking-to. And they certainly didn't have to belittle her and make her cry.