La camisa blanca me queda mejor que la azul.

Because Spanish often uses an indirect object pronoun with quedar when talking about how clothes fit or suit someone.

• me queda = it fits/suits me
• te queda = it fits/suits you
• le queda = it fits/suits him/her

So me does not mean myself here. It marks the person the shirt looks better on.

Example:

• Esta falda me queda bien. = This skirt looks good on me / fits me well.

Quedar has a special use with clothes, hairstyles, colours, etc. to mean to suit, to look on someone, or sometimes to fit.

So:

• La camisa blanca me queda mejor = The white shirt suits me better / looks better on me
• La camisa blanca es mejor would mean the shirt is better in a more general sense
• La camisa blanca está mejor would sound different and would not normally be used for this idea

In this sentence, quedar is the natural verb because the focus is how the shirt looks on the speaker.

Because camisa is a feminine noun in Spanish:

• la camisa = the shirt

Adjectives usually agree with the noun in gender and number, so:

• camisa → feminine singular
• blanca → feminine singular

That is why you get:

• la camisa blanca

not:

• el camisa blanco

Because not all adjectives change form for gender.

• blanco changes: blanco / blanca
• azul usually stays the same for masculine and feminine: azul

So:

• el jersey blanco
• la camisa blanca
• el pantalón azul
• la camisa azul

This is very common with many colour adjectives.

Because Spanish often leaves out a noun when it is already understood from context.

Here, la azul means:

• la camisa azul

The noun camisa is omitted because it has already been mentioned. This is a very common structure in Spanish.

Similar examples:

• Prefiero el rojo. = I prefer the red one.
• La grande es más cara que la pequeña. = The big one is more expensive than the small one.

Because when the noun is omitted, the article often stays to show what kind of thing is being referred to.

So:

• la azul = the blue one
• la blanca = the white one

Without la, azul would just be the adjective blue, not the blue one.

Mejor que is the normal way to make this kind of comparison:

• better than = mejor que

So:

• me queda mejor que la azul = it suits me better than the blue one

This follows the same pattern as:

• Es mejor que eso. = It is better than that.
• Canta mejor que yo. = She sings better than I do.

Yes. That is also natural.

Both quedar bien/mal and sentar bien/mal can be used with clothes to talk about how something looks on someone.

Very roughly:

• quedar often suggests fit/appearance on the body
• sentar often suggests suit someone / look good on someone

But in everyday use, especially with clothing, they overlap a lot.

So both are good:

• La camisa blanca me queda mejor que la azul.
• La camisa blanca me sienta mejor que la azul.

Yes, Spanish word order is flexible, though some versions sound more natural than others depending on emphasis.

The original sentence is very natural:

• La camisa blanca me queda mejor que la azul.

You could also hear:

• Me queda mejor la camisa blanca que la azul.

That version puts slightly more focus on me queda mejor first.

Still, for a learner, the original order is a very safe and natural choice.

It can suggest either, depending on context.

With clothes, quedar may refer to:

• how something fits
• how it looks on someone
• sometimes both at once

In this sentence, because of mejor que la azul, the idea is most naturally about which one suits the speaker better in appearance, though fit can also be part of that idea.

Because azul is one of many adjectives that do not change form for masculine vs feminine.

So the feminine noun camisa does not force azul to become feminine in form.

You say:

• camisa azul
• falda azul
• chaqueta azul

all with the same azul.

Yes, but the meaning changes slightly.

• La camisa blanca me queda mejor que la azul = The white shirt suits me better than the blue one.
• La camisa blanca queda mejor que la azul = The white shirt looks better than the blue one.

Without me, the sentence becomes more general. It is no longer clearly about how the shirts look on the speaker.

No, not in this structure.

With comparisons of superiority, Spanish normally uses:

• más ... que
• mejor que
• peor que
• menos ... que

So here it must be:

• mejor que la azul

not:

• mejor de la azul

De appears in other structures, but not in this kind of direct comparison between two things.