"Can they take all the profit and roll in into their new house?"
No. Each transaction is treated according to its own rules, and what you do with the money later has no affect on the tax situation with respect to the sale. The rule about postponing tax on capital gains by rolling it over into a more expensive home was eliminated in 1997.
You need to stop and get tax advice from a qualified professional.
As it stands, you, your spouse and your child are probably each 1/3 owners of the condo. Alternatively, you and your spouse might together own half and your daughter owns half. Either way, when the condo is sold, your daughter may be able to exclude up to $250,000 of capital gains from her 1/3 or 1/2 the condo, but the capital gains due to the 1/2 or 2/3 that you own will be reported as taxable income on your tax return and the tax is due from you.
You may be able to quitclaim your share to your daughter, so the capital gains will be covered by her exclusion. That would result in a gift that might be reportable but probably won't be due gift tax.
Also, if the husband has lived in the home for 2 years (even if they have not been married for the whole time), then they may qualify to exclude $500,000 of the gain instead of $250,000, assuming they were full owners.
You need competent legal and tax advice before the home is sold.
