There are two forms of prep school -- NAPS and Foundation. NAPS is free. Foundation is partially subsidized by the USNA Foundation (private donations), partially by the Foundation school itself, and partially by parents, based on their ability to pay.
Either one essentially "guarantees" you an appointment to USNA the following year provided you successfully complete the program and still want to attend USNA. They reapply but the application is largely "pro forma." They must apply for a nom but, if they don't receive one, they will be given a SecNav nom.
Prep school is generally viewed as a "good thing" for those wanting to attend USNA. Yes, it's an extra year. BUT, it provides additional preparation in terms of academics, maturity (i.e., living away from home), athletics, etc.
Can't speak to whether your BGO "knows anything" about your DD. As a general rule, candidates who are deemed not scholastically qualified but who are viewed as very strong, may be offered NAPS/Foundation. That can mean high grades/class rank but lower SATs or the converse. It could be doing really well academically in your school but the school itself not being particularly strong academically. Or various other combinations.