On the incredibly hot afternoon during which the action of chapter Seven takes place, Tom and Gatsby are engaging in heated conversation about much more than the weather. All afternoon long, they have been challenging each other, questioning the validity of claims made about their personal history and past accomplishments and attempting to discredit the other. All of this is being done in Daisy's presence, and she becomes more and more distraught as the accusations become increasingly personal and she is drawn directly into the conflict.
Daisy loves both Tom and Gatsby, each for particular characteristics and contributions made to allowing her to maintain the lifestyle she enjoys and wants to continue. She can't bear the arguing because she doesn't want to have to face the possibility of losing either one of them.
When Gatsby decides to stop arguing with Tom, he asks Daisy to renounce Tom and say that she has always loved only him. This is the thing Daisy dreaded above all else.
Her eyes fell on Jordan and me with a sort of appeal, as though she realized at last what she was doing-and as though she had never, all along, intended doing anything at all. But it was done now. It was too late.
Daisy follows Gatsby's direction and denies having ever loved Tom, but breaks down under Tom's questioning. "I did love him once-but I loved you too."
The argument between Tom and Gatsby takes a turn for the worse, venturing into allusions regarding past illegal activities in which Gatsby may have participated or may still be involved. Daisy sees and hears Gatsby's reaction -
he looked...as if he had 'killed a man.'...he began to talk excitedly to Daisy, denying everything, defending his name against accusations that had not been made.
and she becomes scared of what she was seeing in Gatsby, of what she had heard from Tom, of loosing her husband and the wealth and status he brought her.
Daisy draws "further and further into herself" in self-protection from involvements that she can no longer control and exploit for her own pleasure. She has made her choice; in that era and in her social circle, divorce was unthinkable, so she had to remain with Tom.