Kathy is someone known by Two-Bit.
When recalling how he had nearly crashed into another car, Two-Bit mentions that it almost killed him and Kathy the night prior. He suggests for Ponyboy to see her brother, recalling his appearance. Kathy is assumed to be Two-Bit's girlfriend or date, and not to be mistaken as his younger sister. He has a sister who is unnamed and Kathy has a brother who is unnamed.
She makes no appearance in the movie or book, but only mentioned by name in the movie, and only referred to as "kid-sister" in the book.