She's a god... and she's laughing at your misfortune. It's either that or she saw Rinnosuke naked.
Since she's a deity, I wonder what folklore/historic tale she is based on? I know she collects misfortunes through curse dolls and that there are speculations that she IS a curse doll. Due to the air of mystery about her, she may very well be my favorite character in Touhou.
Someone please enlighten me. There are a lot of character in Touhou that are based (and actually) on Far East tales that are somewhat obscure to western fans. Tell a fool something...