It's tied to Last Light Inn because Isobel is channeling Selune's holy power to maintain the holy light dome that protects the people from the curse and Dame Aylin is Selune's actual own daughter who was sent to Moonrise as her emissary. So by killing her you're basically killing the daughter of the very goddess whose holy power Isobel is channeling to protect Last Light Inn.
A celestial mother witnessing the death of her own daughter at the hands of her own Selunite that's been brainwashed by her arch-enemy twin-sister Shar, has that kind of effect.
As for why; it's because evil choices are designed as punishments for the player to roll with for straying from the heroical path, rather than branching the story out in interesting ways and introducing the player to unique paths filled with content one normally would not have access to. That's why majority of evil choices do not have any satisfying outcomes because they're just consequences that lead the player down the exact same paths as heroical choices (naturally with differences reflecting both choices), but drastically less content to engage-in afterwards.
