Conference proceedings (not to be confused with a handful of actual journals that just contain "proceedings" in their name) can be thought of like the paper programs you might be handed at a play. They're usually meant to be an accompaniment to the event rather than a stand-alone publication. Their intent is to collect contributions from conference participants into a handy reference that attendees can use if they want more information, missed a talk they were interested in, etc.. Extremely high quality proceedings are peer-reviewed and might eventually evolve into a text-book. This level of quality is relatively rare though.
Most conference proceedings are not peer-reviewed and many aren't even read once by the conference organizers/"editors". This usually isn't thought to be a big deal because it is assumed that, were a submission truly fraudulent, the submitter would inevitably be outed when they give their talk. However, some conferences make submitting an original paper for their proceedings mandatory for acceptance. Getting funding to attend a conference is usually a lot easier if you're presenting, so researchers are motivated to speak even if they merely wish to attend. Speaking looks better on your CV to boot. Since conference proceedings are typically ignored, researchers generally won't put their best effort into these papers. When dead trees ruled, conference proceedings would be rapidly forgotten simply because you'd have a deuce of a time finding them if you somehow heard about a paper in it that you wanted to read! They simply weren't distributed to anyone besides conference attendees and maybe a library or two. Today, electronic copies have brought poor quality conference proceedings to a far vaster audience than they were ever intended for!
I'm disappointed, but not the least bit surprised that some people would submit something created by a paper generator to a conference. The blame for this falls squarely on conference organizers for requiring paper submissions but being too lazy to even read them once. If you don't want to read a stack of badly written papers, require abstracts only and, if you're still gung-ho to make some proceedings, welcome voluntary paper submissions.
This incident should not shake confidence in peer-reviewed journals one iota. It might, however, discourage conference organizers from requiring papers from speakers if they're not committed to reading them all.