Short circuits and equivalent resistances: why does the subcircuit get cut off?
No, the correct answer does not mean that "everything to the left is shorted out". In this case it is quite the opposite. There is no complete path for current to flow through "everything to the left" back to either Node1 or Node2. If no current can flow through these elements then they can not have any effect on the rest of the circuit. Therefore, they can be ignored.