Just tell her you are very sorry and that she will be in your prayers (heart, if non religious). Tell her you will be happy to talk with her or help her any time she needs... and follow that up with calling her or sending her a note every once in a while asking how she is doing. Chemo is very rough, makes you very sick and is painful. She would likely appreciate some cozy slippers or a bed robe, lotion, someone to come by and check on her, make her some homemade chicken soup, some crossword puzzles and company to keep her occupied, fresh flowers delivered to let her know someone is thinking of her, pictures your kids draw to send to her.
My dad had long, horrible battle with leukemia and died from it. He had a lot of friends/family who were so scared to say anything, that they said nothing and drifted away. He had 6 siblings and only 3 of them EVER talked to him. It was extremely hurtful and depressing to him, he didn't hear from his only brother for almost 7 years before he died. You don't have to understand or have the right things to say, just let her know you care and hope she has comfort.
Also, don't do false hope things like, "You will be fine", or "you will be alright"... b/c the truth is, she very well may not be, especially since she is in her late 70's. Maybe you can reach out to her and make a friendship with her. Talk about fond memories and such, just chit chat, get to know her history.