I think my sister is getting demented. She is irrational now and never very pragmatic. How can I tell her?

Spend time with her. It's nice of you to care and want to help her. How you tell her will depend on your relationship and your typical way of interacting. It's often helpful to introduce a difficult subject within a context of being caught up and having good rapport. This may be more comfortable after an enjoyable experience together. Then, you could start by mentioning what you've noticed and listening to her reply.