I have to assume that since Michael was on the outs with Connie in GFII (as in the boathouse scene with Merle and dinner afterward), he certainly didn't tell her about Fredo's treason--or at least not the full details. But Fredo probably told her a highly colored account of it that made him sound like he was the victim and Michael was being wrathful, vindictive, unfair, etc. Connie was probably pissed at Michael, but for the purpose of trying to change his mind, she got on her knees and took the supplicating-sister approach.
Connie's speech to Michael in the boathouse is one of the more underrated pieces of the story. While she is intervening for Fredo, she tells Michael that she wants to stay close to home now, and that he needs her to take care of him. She tells Michael she now realizes that during her wayward period she was acting out of anger at Michael for what she now realizes is his being strong for the family. What she is really saying is that she ran around with men who used her "like a whore" to get back at Michael for killing Carlo. Then in a stunning statement she tells Michael that SHE forgives HIM for what he did and asks can't Michael forgive Fredo? Had this been anyone but Connie, I think Michael would have gone nuts. To Mike at that point in his life, there was nothing he did which needed anyone's forgiveness, yet he lets Connies statement stand. Michael must realize that he does need what will be his only surviving siibling. As a gesture of doing Connie a favor, Michael
comes into the house and hugs Fredo while simultaneously giving Neri the visual order to kill him. It is then Connie who summons Anthony away from the boat in which Fredo says his last Hail Mary.
At that point I doubt that she was aware of the degree of Fredo's betrayal, but she was acutely aware of how little it took to set Michael off, and she was asking Michael to forgive Fredo just as she forgave Michael. Whether she ever believed the cover story about Fredo's death is something we can speculate about, but the next insight into all of this comes in GFIII after Michael tells Connie that he made his confession (i.e. a request for forgiveness).
Connie says she is surprised that Michael would confess "to a stranger," and Michael tells her it was "the man" who was a "real priest" who motivated him. Right there Connie makes a comment about "poor Fredo drowning" and how all that is in the past. So by then she knows for sure that Michael ordered the hit on Fredo and that this forgiveness issue has now gone full circle.
By that point of course, she is pretty savvy to the family business, and really becomes the power behind Vincent's rise. It is worthy to note here that it is Connie who is the last of Vito's children to make her bones, and she does so after Michael is officially out as Don. She does it with a cannoli.