It's a cake for the toddler to dig into with their hands, so the bigger "pretty cake" can be eaten by adults who don't want slobber/baby hands all in their cake!
I am very glad that you asked this. I had never heard of one. In our families, we just cut the cake, gave the child a piece and watched him make a mess of that.
I had never heard of this but I think it is an excellent idea! I am curious if this is something that originated in the US or another country's custom?