So luckily my sister did not send the woman the money and we didn't end up losing money to a con artist. Like many people, we had naively thought that a cashier's check pretty much had to be on the up and up. This, however, is not true.
The loophole that the con artist exploits here is that the Federal Government Insurance Corporation requires banks to make funds available from cashier's checks, teller's checks and certified checks within one to five days. So the check will appear to have been deposited in your account. But this may be considerably before the issuing banks has honored it. And that gives a person sending a fraudulent check more than enough time to maneuver. There are many variations on the scam, but one basic device is that the scammer persuades you to send money back on what appears to be an overpayment before the check is revealed as fraudulent. Any misgivings the payee may have are mitigated by the 'good as gold' reputation of cashier's check, as well as the fact that the money appears to now be safely in their account.
The scam is still relatively new, which is why many people who aren't involved in commerce in a day to day way may still be unaware of it. When I used to work in the bookstore, we became aware of a Nigerian credit card scam using stolen cards over the phone. For some odd reason, they always seemed to be wanting to buy Black's Law Dictionary in quantity or something equally dubious. The cashier's check scam too seems to have originated in West Africa. But if our story is anything to go by, the Ukrainians seem to have taken a fancy to it.
For more detailed examples, here's Snopes, and here's the OCC with their own examples. Oh, and here is a blog post by an artist named D. Michael Coffee, telling the story of how a scam was attempted on him. I include it because it's informative and because he has a photo of fake cashier's check at the end, annotated with what is wrong with it.