If you take her comment in context it is clear she knew Michael killed Fredo.

Michael had just told Connie, much to her surprise that he had made hs confession to a priest. Once she digests this, out of the blue she make a comment about "poor Fredo" drowning. This was her way of telling Michael that even if he confessed to the murder of Fredo, the story Michael had given the family would stand and that she would not break what amounted to Omerta.