Yes, daughter in law was used where we now use step-daughter. I forget when it changed but certainly it was like that often in the first couple of censuses.
So I think Amelia was probably Elizabeth's illegitimate daughter. And perhaps grew up using both Read and Playdon as her surname. Possibly registered illegitimate Sophia Jane as Playdon, then married James Bailey and Jane took his surname.
But it is still all unconfirmed.