Just took mine apart and it all fell/crumpled out.

 

Don't know what it's made from, but it's part of the heat sheild. It's pretty common for it to break loose.

I wouldn't worry with it much, as the outer sheild is still in place.

 

I'm not familiar with the setup of our cat, but I was involved in the development of catalytic converters on other cars. They would typically use an "intumescent mat" as a filler when it is used. Its purpose is to act as an insulation blanket, preventing the heat from escaping to the surrounding area. Intumescent Mat is a ceramic fiber mat similar to fiberglas, but with much higher melting temperatures. It is also used on the inside of cats between the shell and the substrate.

Yes, it would fall apart because after it is installed, its strength is not important. Once it gets cured (from heat), it becomes relatively brittle.