For the most part, the answer is "ask the parents what would be helpful". You didn't clarify your relationship with the parents, but regardless of your relationship with them, it should be easy - just ask in passing what you can do to make the visit go best. Covid may have made them a little rusty at going places with their kid(s), but odds are they have done this before and know roughly what is what.
Going over your questions in order:
The Mom says that the younger girl goes to bed at ~6:30 PM, so is lunch better?
Ask the mom what is best - give her a few options. Sometimes 5pm dinner is perfect; kids get tired on car rides near bedtime, and for some kids/parents this is great. For others they'd rather stick to home routines at bedtime and do a lunch instead.
Do people usually bring activities for their kids in case they get bored, or should I have...books or toys or something else for them?
You don't need to go buy anything, if that's what you're asking. What's most important is that the kids have a place that's kid-safe. What I mean by that is, a space where they can be, without constant "don't sit on that, it's an heirloom" coming from the adults. Whatever room is best, make sure nothing that you mind being broken is in there; obviously nothing dangerous; and plenty of space. Kids that age like to run around, move, climb, jump, etc.; so anything that could be climbed on, will be. Sofa is okay, but not a small table that isn't stable with a kid on top of it, that sort of thing.
Her parents should bring things for her to amuse herself with; you might want to make that clear though ("I'll make a space for her to play, but I don't really have toys or anything like that"). When I brought my kids to places where there weren't any toys, I prepared appropriately, and I'm sure her parents can also.
If you want to, it's generally acceptable to get a small gift for the child, which could be something they could play with there. Usually this sort of thing is in the $5-$10 range at most, in my experience, but it varies of course based on the people involved. A small stuffed animal or a car or a book that you liked or that you have reason to think she'd like, that sort of thing. But it's not expected, and definitely not required, and don't be too surprised if she doesn't play with whatever you give her - she may, but she may have her own things she's into, and you shouldn't take it as her not liking you or the gift. Also clear it with the parents if you don't know them well enough to know what they'd be okay with - some parents have opinions on things like plastics, or stuffed animals, or things like that, and might object to particular things; I've had people try to give my kids toy guns for example, which we don't consider appropriate.
Do I put away the alcohol so it's not visible?
Unless her parents are particularly worried about alcohol, that's not necessary. You're not expected to 100% childproof your house; she will be supervised, and while I wouldn't have bottles just laying around in the area you set up for her, elsewhere in the house it's typically fine, again unless her parents are particularly anti-alcohol themselves. I say this as a teetotaler myself; it doesn't bother me that there's alcohol out when we come over with kids, and I don't expect it to bother other people generally - but you know your friends best. Ask them if you think it might bother them.
Do I put covers on the outlets, or is there anything else I should consider safety-wise? (The entrance to my house is on the upper floor, so you go downstairs to the living room–the stairs do have carpeted mats so they're less slippery.)
I wouldn't do that for a visit, no. If she's over all the time and might end up unsupervised at some point, then maybe, but for a visit where she'll be supervised the whole time that's unnecessary. Like I said before, set up the area you expect her to be in so nothing breakable is out (or nothing that you mind being broken or that would be particularly unsafe), and if you have anything you're not sure about, ask her parents.
Anything bathroom-related I should consider?
At 3-3.5, odds are she's potty trained, but a lot of 3-3.5 year old kids are barely potty trained. If diapers are still relevant, parents will bring those. Ask if they need a changing space; if so, make sure somewhere about 4' by 2' is available to change on. More likely though is she'll need a small stool if you have one in the bathroom to make getting on the toilet possible and to put her feet on. Most likely she's still parent-assisted, so make sure your bathroom is big enough and cleared out enough for a parent to be in there with her, but if she's solo, you might want to make sure you don't have anything a kid shouldn't have or you don't want to have to explain to a curious kid out on the counter in the bathroom, or anything sharp or dangerous of course.
Again, here, ask the parents what they need!
In general, don't stress about this, it's not a big deal and the parents should be used to a variety of different things.
One thing you didn't ask about was food - clear the menu with the parents ahead of time, for sure. Find out their opinion on dessert or sweets or drinks. Some might want just water for example, or water/milk, while some might think juice or (non caffeinated, non diet) soda is fine. This is a big place where a quick chat ahead of time can smooth things out a lot. Find out what she likes, find out if the parents prefer to have a separate "kid meal" or if they believe kids should eat what the adults eat, that sort of thing (and of course, allergies/preferences).
