She was pointing out to the photo
"Who is this?" She said while pointing out to the photo.
Is it correct to use "point out" in this context?
I would say while pointing at the photo, or pointing to the photo. You do not need the word "out".
Pointing out the photo. / Pointing to the photo. / Pointing at the photo. are all possible (but the first means to draw attention to it, to distinguish it from its surroundings).
Pointing out to the photo. (not said/possible)
Not correct the way you have it, but it is a separable phrasal verb. You can say the following:
"Who is this," she said, while pointing someone out in the photo. The pronoun someone is placed between the verb and preposition, and you still have the phrasal verb.
I have included a link to a phrasal verb dictionary just in case you are interested in having a look.
"Who is this?" She said while pointing to the photo.
The above example is the correct version.
People can use the phrase 'to point something out', but it is not correct in this case. Eddy has the correct phrase
Who is that? She said while pointing out the photo.
(it means the other person had not seen or noticed the photo)
This could be a situation where out might be used.