Legend of the Russian Stacking Dolls(check my grammar, please)

(I've heard them called Russian Nesting Dolls, "nest" as in to fit inside another)

(You could also say "introduce you to" or "talk/write about")

Once upon a time, a boy’s sister was lost in the forest.

(Looks good!)

After she got lost in the forest, he still very missed his cute sister very much.

(If you say, "he still missed," that means he missed her even before she got lost. In the second half you can also say, "he very much missed," but what I wrote is probably more common in the US. I would also suggest using fewer pronouns (he/she) in this case. You are talking about two different people so it can get confusing. After she got lost in the forest, the boy missed his cute sister very much.)

So He carved a wooden doll that looked just like her.

(In the next few sentences you start with "So" and "And" quite a few times. These conjunctions (and/or/so...) usually join two sentences together. It is okay to start a sentence with them, but I would caution against using them too often! However, when you are speaking it is generally acceptable.)

And the wooden doll was called a matryoshka doll. As time went by, he still carved a matryoshka doll every year.

(You can keep using the word "still." (see follow up comment))

And every matryoshka doll with age was a different size.

(This one's a little more complicated. Maybe try: "Every matryoshka doll represented a different age and was a different size." Or even better, you can write a few more sentences explaining how every year he carved a bigger doll.)

In the end, he carved seven dolls by himself. When he missed his sister, he would open the doll and make a wish to the doll.

(Good!)

I have some more personal stylistic choices, but I tried not to change your note too much!