The conceit of this scene is that while filming a Bollywood musical of the Sanskrit epic the Ramayana, the actual demon Ravana appears and is mistaken for the actor who is playing him in the movie. The director is so mesmerized by his "performance" that he urges the cameras to keep rolling, asking Shandani, the actress playing Sita, to improvise along with her "co-star".
Zany you say? Indeed! But in the spirit of Bollywood musicals -- not that far fetched!
NOTE: Seeing this again, I would insert a wide reverse angle here to establish the geography of the movie set with Ravana, the actors and crew.