In Order of the Phoenix, chapter 2, Mrs. Figg reveals that she has been watching Harry for years, but was told by Dumbledore not to tell him about the Wizarding World:
“Why didn’t you tell me you’re a Squib?” Harry asked Mrs. Figg, panting with the effort to keep walking. “All those times I came round your house — why didn’t you say anything?”
“Dumbeldore’s orders. I was to keep an eye on you but not say anything, you were too young.”
I understand not telling him about everything when he's 4 or 5, but Harry visited her mere weeks before receiving his acceptance letters from Hogwarts. Keeping the information from him that late in the game seems really silly.
Heck, right when the Dursleys were getting streams of letters would have been a great time for Mrs. Figg to stop by and explain the whole situation, rather than making Hagrid track them down to the middle of nowhere.
Speaking of Hagrid, he expected Harry to already know all about the Wizarding World. Sure, the Dursleys weren't forthcoming about the information, but if Hagrid figured that Harry was old enough to learn form the Dursleys, and both Hagrid and Mrs. Figg were on orders from Dumbledore, then why didn't she tell Harry about magic and such?