Don't mistake this as a typical musical number from a typical musical film. Pennies from Heaven began as a BBC TV series in the 1970s, written by Dennis Potter. It's about a man in 1920s England who imagines the romantic glamour of popular music entering his life, imagines ordinary people breaking into song, mouthing the words of actual songs from the era. The idea is a dream so impossible, so hopelessly desired that it spontaneously erupts into the real world.
What made it work was the other-planet distance between drab England and the dream-factory world of the songs. For most people around the world at the time America barely existed as a real place. It was Shangri-La. The film version made the mistake of transferring all this to America, negating much of the impossible yearning. It's just vaguely conceivable that Bernadette Peters could meet a smooth dancing gigolo in a bar somewhere in the States, but utterly impossible in the England of the 1920s. Still, this scene works, not merely as an expression of optimistic showbiz pizazz, not just as a showcase for the dancing skills of Christopher Walkin, but as an inner erruption of defeated desire. It's only happening in her mind.