It sounds like your niece may have macrodactyly, although it would be impossible to say for sure without seeing her or reviewing her medical records. In macrodactyly, one or more toes becomes significantly larger than the others; all the parts of the toe are larger, from the bone to the fat, and everything else.
When a doctor decides on treatment, the issues at hand are:
Is the toe causing pain or disability?
Which toe is affected?
What is the goal?
What are the options for this particular patient?
Amputation may seem like a simple answer, but it isn’t. You have your toes for a reason – they help you balance as you walk and run. Depending on which toe is removed, this could have a significant impact on the foot on the whole. Your niece’s parents should be discussing this with her doctor, seeing what the options are and what they feel would be the best approach.