Matrices are used in solving coupled linear differential equations, in numerous applications in physics, in quantum mechanics (very heavily there 
), and in a number of engineering courses. If your daughter covered matrices in 7th grade, she may not have had the depth of coverage that the college thinks is important. Also, they may want the students to have internalized the concepts, so that they can use them at any point in the future. Do they have a later course in linear algebra that is required for engineering majors?
I can’t speak to your daughter’s specific situation, but I can say that students at my university are very strongly advised to take the math course that the placement test suggests, rather than the one that appears to be the next in the sequence based on their high school course work, or even the one that is a single course repeat.
Also, if your daughter did not do especially well on the SAT math section, in my opinion, this would be even more reason to be cautious about the math placement.