Because she is regressing into her earlier memories. The first memories that go are the new memories. She can not make those new memories and why she has no clue what occurred an hour or day ago. Later in the disease she will lose other memories that are more recent and as time goes on she will regress backwards in time as more and more memories and lost.
The other problem is that nouns are the first part of speech that goes away. "Please pass me the .... pause... thing". "I need... uhhh... that thing over there". They will ask "Who is that?" when it is somebody they should know. Names tend to go away quickly. So how can she talk about somebody that she can't remember their name... or somebody that she doesn't remember. In her mind she may be a young adult and first married. She may talk about her husband or her Mom or her Dad but there is little memory of a child (except as a baby) or grand children.
So it is just part of the disease. They talk about what their brain allows them to remember.... and their ability to communicate allows them to talk about. Just enjoy the stories she is telling you and assure her that everybody is ok
There is not need to tell her that they are no longer living. She will be in shock and grief, then forget it and you will be right back where you started. So just tell her that everybody is ok.