Liddy Walsh was a friend of Mary Winchester from Haleyville, Kansas.
Dean Winchester was transported back to Lawrence, Kansas on April 30, 1973 by Castiel who gave him the cryptic assignment: "You have to stop it." While there, he was shocked to discover that his mother Mary was a hunter, as were her parents, Samuel and Deanna Campbell. He encroached upon one of their cases and found that Azazel was involved.
Fortunately, Dean had transported his father's journal back in time with him and knew that John had made entries detailing "who, where and when" anytime he thought the Yellow-eyed Demon was involved with a case. He found an entry that began: LIDDY WALSH, HALEYVILLE, KANSAS, MAY 02 1973 (which happens to be exactly 10 years before Sam's birthdate). The entry goes on to describe some circumstances surrounding her death. Armed with the knowledge of where and when the demon was going to be, Dean resolved to drive to Colorado and get the Colt from Daniel Elkins and then go kill the demon at Liddy's house. Later, when Mary asked her Dad if he knew where Dean went, he told her he went to the Walshes' in Haleyville, planning to kill a demon. Very concerned about her friend, Mary immediately jumped up and demanded that they go help her.
At the Walsh place, the Yellow-eyed Demon, possessing a doctor, was laying out the terms of a deal to cure the aggressive cancer of Liddy's loved one in exchange for her giving him "something" in ten years. Confused, she hesitated, and watched the demon's eyes turn yellow just as Samuel kicked the front door in and blasted him with a shotgun, which had little effect. Mary and then Dean arrived and a battle ensued. The demon eventually vacated the doctor's body, apparently before Liddy's deal was settled, and before Dean could vanquish him with the Colt.