Why did this happen to her?

This is a risk with travel nursing, especially in times like this with the economy so weak. The best thing you can do is to prepare for this possibility by making sure you have an emergency fund to cover several months worth of bills and living expenses before starting to travel.

I am not sure what you mean??? If she had signed a contract which is legally binding and they "laid her off" then they terminated the contrat which is NOT legal...Just as if you break a contract the company can hold you to the contractual terms of the agreement..the same goes for them...
this has never happened to me and if a contract is signed the company has to follow it...If the hospital ends the contract the company is obligated to pay up or find another assignment for her...

This happens in traveling.

In many agencies, if the hospital cancels all of its contracts, you are out of a job...and by extension housing, utilities, etc. Your friend needs to check her contract carefully to see whether it requires her be paid for the time remaining on contract. If she signed it, and the pay is not guaranteed, she is out of luck.

Being on an agency means absolutely nothing as far as insuring one has steady work - this is a risk of traveling. Being signed up with an agency does not mean you have guaranteed employment....especially in this economy...especially if you go in with only one to two years of nonspecialty experience. This is why you will see most experienced travelers encouraging 2-5 years experience in a specialty that is highly marketable.

As a traveler, you are an independant and work on a contract to contract basis. Your agency will not guarantee you work, though they will try to keep you working, as that is how they make money. But if you cannot get a contract ( not suitable, no jobs available, not enough experince, interview poorly, very choosy), you are not going to work and you are out of luck. This is a problem with being a traveler and a risk that you take, for traveling.

And in the current economy, there are very few jobs available for travelers and facilities can pick from the cream of the crop. Optimally, you friend should have been able to pick up a new assignment. But in this economy, the pickings are slim.