Since she is still young, she still feels more comfortable in something that resembles a nest. However, if she continues this in a few more months, I would recommend getting a couple of smaller food bowls that she cannot fit in and taking the larger bowls away. If you give a female bird anything that can be used as a nest, it can cause chronic egg laying. You also do not want her to try to lay eggs when she is too young. As far as the breathing goes, since her beak is closed, I would not worry about it. Your house might be a bit cool for her at night so she might prefer having her cage covered or partially covered at night. Canaries and other small birds do not tolerate drafts very well.
Thank you for asking Lafeber,