Katie Halsey is one of the book's most fascinating characters. She's also (unlucky for us) one of the book's most elusive characters. This is a clever authorly trick on Rand's part: Halsey has the potential to be a great character (but fades away over the course of the novel) just as she has the potential to be great (but lets the world batter her down).
Katie Halsey starts out as a shy ugly duckling that (somewhat inexplicably) loves Keating. Keating loves Katie for her sincerity and her kindness. This sounds like the plot of a bad teen movie where the nerdy heroine captures the heart of the big man on campus, gets a glamorous makeover, and lives happily ever after.
Katie's life, though, is anything but a fairy tale. Keating abandons her for the glamorous and upwardly mobile Dominique and realizes the error of his ways a few years too late. Meanwhile, Katie becomes the ultimate victim of her evil Uncle Ellsworth and gets transformed into a shell of her former self. When Keating meets up with Katie post-divorce, he finds that:
She did not react to his scrutiny [...] she seemed to have no consciousness of her own person. (4.9.30)
Katie's is an object lesson for what happens when you fall prey to Ellsworth Toohey's philosophy. Toohey is all about crushing the spirit of individuality, after all, and the last time we see Katie she's ultimately a horrifying portrait of what happens to an individual when their spirit is totally crushed.