She won't remember everything. She may remember some, especially if it continues (you continue to talk bad about your mother.)
Probably the best thing you can do is be honest with her. Don't give her the dirt on your family, but tell her that you hate that she heard those things, and that even though you were upset, you hate that she was in the middle of it.
When she asks about it, you may want to tell her that you chose to break things off with your mom and the rest of the family because it was very very difficult for you to remain close to them, considering the situation. Let her know that you don't expect her to hate Grandma, and later, if she wants to, she can try to reestablish a relationship, but right now, she needs to trust that you thought it through and did what you felt was best for your family.
Five years ago, I would have argued that you should definately work things out, glossing over the bad stuff, because they're the only parents and sibling you get to have. Then we moved in with my in-laws, and my husband and then-four-year-old interrupted a guitar lesson my FIL was giving, to ask where the phone was so they could call 911. My son was having an allergic reaction to shellfish. My father-in-law, after the guitar student left, raised his fist to my husband, with my barely-able-to-breath son lay on the floor looking on, for interrupting the lesson. Some parents deserve to keep their important-person-in-your-life status.