Yes - it means someone might feel slightly sad and feel happier to see someone, a friend or relative. Or it could mean some good luck, if I had no job, then I met someone who gave me a job, I could say to them, "I'm all the better for seeing you!". Mainly the first one though.

Like Coco I have only read it in Little Red Riding Hood. "Grandma, what big eyes." "All the better to see you with, my dear.' But Craig's answer is right.

I've never heard this expression at all, except as "All the better to see you with" said by the wolf to Little Red Riding Hood.