Of course they do. Besides, why would one want to teach them that it is OK to dress immodestly in God's house at any age? Our Lady at Fatima said the fashions of later times would offend her Son.
Girls (and boys) before puberty have always dressed differently from the 'grown' folks. For example, it has always been permissible for young girls to wear very short skirts (with tights of course) and short or no sleeves. At that age it's not considered a lack of modesty. The rite of passage used to be putting up the hair and letting down the hems, just like boys going into 'long pants'.
And I'm sure if the priest thought that pre-pubertal girls should be included in the rules, he would have spoken up.
As I remember, there is no A/C at the grotto. When you have kids swooning in the summer (and I have heard of this happening), it is time to rethink modest. I’m not saying shorts, flip flops or tee shirts, but when it is 95 degrees, sundresses should be allowed.
95 outside is 110 inside.
I solved the problem by buying little crochetted bolero jackets for my girls, but the Grotto is not in the best of neighborhoods. Some of those people can only afford the Walmart sundresses for their girls. They should not be looked down upon.