The passage you're referring to is found The saga of Erik the Red, hereafter ESR, chapter 11. Thorfinnr Karlsefni and his expedition had founded a second settlement on Vinland called Hop, and met some indigenous people. They trade, but some weeks later, the indigenous people attack and rout the Norse settlers. Freydis Eiriksdottir does not like this, berates the men, and then ends up frightening a few of the indigenous people off when she screams at them and slaps a sword against an exposed breast.

To clear one thing up before attempting any interpretation - this likely never happened. Freydis Eiriksdottir is of exceedingly questionable historicity, doing two totally different things in the two sagas about Vinland. Additionally, ESR is generally considered slightly less reliable than its counterpart Groenlendinga saga, with a greater inclusion of fantastical things, learned Continental beings like Sciapods (men with one foot who live near Ethiopia, described in the work of Pliny the Elder), and a less plausible route of where people traveled in Vinland from the first settlement, likely L'anse aux Meadows in northern Newfoundland. So, the second part of the question is only answerable from a literary perspective, not a historical one - the "Skraelingjar" of ESR are not a legitimate or faithful representation of any indigenous groups that Norse people may have met, and should not be treated as such.

Anyway, Freydis is extremely difficult to interpret, surprising nobody. The largest recent study is by Oren Falk, titled The Bare-Sarked Warrior. He takes an incredibly broad approach to locate parallels to Freydis and how to situate her in her local context, leading across a lot of cultural and temporal ground. He somewhat problematically suggests a deliberate paralleling of Freydis with the Virgin Mary, as a bare-breasted intercessor. But, the cult of the virgin mary arrives in Iceland later than the more commonly accepted dating of ESR is, so this is complicated. Additionally, Falk's argument has another problem - Freydis is perhaps the worst person in a body of sagas that is full of fairly terrible people. Groenlendinga saga plays up this aspect - in that saga, she finances a third voyage to Vinland, cons two ships' captains, Helgi and Finnbogi, into joining her, then lies, cheats, and manipulates everyone around her until her husband Thorvard goes and kills Helgi and Finnbogi in their camp. Freydis goes one step farther and demands the entire camp be slaughtered, and when everyone refuses, she grabs an axe and kills 5 women.

While GS and ESR appear to derive from different oral traditions, how awful she is still causes some discomfort under a Marian reading of Freydis - Kirsten Wolf in her review of Falk's book suggests that the Amazon (another Continental, Classical tradition) makes more sense - I'm inclined to agree. However, that doesn't mean that that is quite a dead end. What is true about Falk's interpretation, and what makes the book compelling, is that Freydis' violence is intimately tied up with her status as a woman, and a pregnant woman at that. She is performing intensely masculine actions of violence, counterpointed against her biological sex and embracing of that sex through upcoming motherhood. It is the tension of this crisis that appears to mark the centerpoint of the saga's fascination with the scene, and it is Freydis' successful adoption of masculine violence upon a feminine biology that leads Thorfinnr Karlsefni to praise her luck immediately afterwards in ESR.

Now, as to why the "Skraelingjar" flee when Freydis does this - ESR is a very racist saga. There's really no other way to put it; the indigenous people that Karlsefni and his companions meet are illiterate, cowardly, monstrous, and fools - both ESR and GS invent a scene where no Norse witnesses are present, but an indigenous person picks up a metal weapon, breaks it or kills someone with it, then discards it as useless or bad. They are made on every level into an ethnic Other, whose sole purpose is to highlight tensions and terrors in the Norse settler colonists.