As KrisD15 said, the FAFSA does not determine who claims the student as a dependent. The tax laws determine who claims the student. If your stepdaughter lived with her father more than with her mother, then the father is going to be the one who can claim her, or you and he can claim her if you are filing jointly. When you answer the questions in TurboTax about his daughter it will tell you whether he can claim her. It will not ask about the FAFSA because that is not one of the things that determines who can claim the dependent.
In the case of parents who are divorced or separated, the instructions for the FAFSA say to use the information about the parent that the student lived with more during the last 12 months. The instructions also say that if that parent has remarried, use the information about that parent and the stepparent. So it appears that your stepdaughter filled out the FAFSA incorrectly. I believe that there is a procedure for making corrections to the FAFSA, but I'm not familiar with the details. Your stepdaughter should look into that.
