Requesting such "brag sheets" from parents (or from the students themselves) is a pretty common practice, and it's actually one I applaud. In many typical high schools, guidance counselors shoulder unwieldy loads, and it's impossible for them to truly know the majority of their advisees. And even in smaller schools--or in those where there is a stronger student/counselor relationship--it's still likely that even the most committed counselors may overlook the key points that you or your child would like a recommendation to include.
I don't know what your school's questionnaire requires, but commonly the emphasis is on extracurricular activities. Of course, you have to answer whatever the questionnaire demands, but--whenever possible--try to go beyond the obvious undertakings that will be on your daughter's application anyway (e.g., Student Government, Varsity Volleyball, Spanish Club, Orchestra ...) and focus on her other strengths that may not be revealed elsewhere in her admission materials. For instance, is your daughter an unusually caring young woman who is good at anticipating others' needs and helping out? If so, not only should you say so, but also be sure to provide an anecdote or two as back-up (e.g., "There was that time when she saw a classmate struggling in Spanish class after being absent with a serious illness. So she offered to stay after school every day until she had helped this other girl to catch up.")
And yes, the final reference that the colleges see is still a confidential one. The counselor will be including his or her own thoughts and possibly soliciting comments from others (usually teachers) as well, if this helps to provide a more complete picture of your daughter.
Trust me, you should be glad that your school officials are gathering information this way. Usually it's the parents who know the child better than anyone else in the world, and yet their input is often overlooked in the admissions process. Back in the days when I read applications for Smith College, I frequently saw counselor references that said no more than, "[Student's name] is a conscientious young woman and will succeed at the college of her choice." Not much to go on, eh? So you should consider yourself lucky that your daughter's counselor reference will be far more thorough and that your own voice will be a part of it.
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