Could a circuit breaker ever be faulty in a way that prevents it from tripping?
Neutral to ground will not blow a breaker.  Live to neutral or live to ground should.

It is possible for a circuit breaker to fail to trip.  This is a huge concern with old Federal Pacific breakers - some were recalled due to not tripping in a fault, and could cause a fire.  Testing for it isn't really a safe thing to do - because if your breaker has failed, intentionally shorting it could cause a fire.

My guess would be that your breaker is fine and there was no short - one wire for the outlet had come disconnected.  You said you wired the chain together after removing the outlet - that chain was broken with the wire missing, so any outlets downstream of that didn't get any power.