Terenia knows what her brother looks like. Remember, she thinks she killed him years ago, when their separation hadn't been as long. Also, when she left Earth he was 16, so he wouldn't physically change too much. Considering Terenia "killed" him from about a foot away from him, it would be pretty obvious if it wasn't him.
Yes, Luke, Terenia knows that Dan is alive. They lived together at the rebellion for about six months prior to the Andalite attack.