Possible to use a while loop within a loop?

The best way to see what is wrong with a loop (or any other control structure) is just to run through it. Sometimes you can do it in your head; at other times, it might be helpful to insert trace points into your code.

In this case, I think if you simply run through the code in your head, you'll be able to pick up what's wrong with it. But for didactic purposes, I'll run through it here. First let's number each line of code:

$array = array(...);               // line 1
$length = 15;                      // line 2
$counter = 0;                      // line 3
foreach($array as $values)         // line 4
{
      $counter++;                  // line 5
      while ($counter <= $length)  // line 6
      {
                                   // line 7
      }                            // line 8
                                   // line 9
}                                  // line 10

Now let's run through it:

1. $array is assigned a single dimensional array:
   array(0 => '1', 1 => '2', 2 => '3', ...)
2. $length is set to 15.
3. $counter is to set 0.
4. Begin for loop; $values = $array[0] = '1'.
5. $counter is incremented. $counter = 1.
6. Begin while loop; check that $counter (1) <= $length (15).
7. Do nothing.
8. Go back to line 6.
9. Line 6: If $counter (1) <= $length (15), continue loop.
10. Line 7: Do nothing.
11. Line 8: Go back to line 6.
12. Line 6: $counter (1) is still <= $length (15), go into loop again.
13. Line 7: Do nothing.
14. Line 8: Go back to line 6.

As you can see, you are stuck in an infinite loop because neither $counter nor $length change values. So the while condition in line 6 always evaluates to true (1 <= 15).

All the code you've posted is legit, but clearly you have left something out and that's the part that's going to help answering this... Otherwise, your $counter stays constant during the while loop and it'll never exit

Why not do something like the below code, it generates a key with one loop. Hell, why not make a function for generating keys?

function keyval($length)
{
    $length_of_unique_key = $length;
    $array = array(
          '1', '2', '3', '4', '5', '6', '7', '8', '9', '0', 
          'a', 'b', 'c', 'd', 'e', 'f', 'g', 'h', 'i', 'j', 
          'k', 'l', 'm', 'n', 'o', 'p', 'q', 'r', 's', 't', 
          'u', 'v', 'w', 'x', 'y', 'z', '!', '£', '$', '%',
          '^', '&', '*', '(', ')', '_', '+', '{', '}'
    );
    for($i=0;$i<$length_of_unique_key;$i++)
    {
        $key.=$array[rand(0,sizeof($array)-1)];
    }
    return $key;
}

echo keyval(15);