Yes, old people use this phrase to describe their grandchildren or great grandchildren. Younger people say, "as cute as" or " she/he is so cute"

The phrase has its origins in the old days when people used brass buttons. You could polish a brass button until it was very shiny and bright. This phrase is used in England more than the U.S. You will also hear the phrase "cute is a button" - buttons are small (like children) and if they are brass, as in the old days, they are bright and noticeable. This is definitely used in the U.S.

It means the kid is smart; I still hear moms/grandmas say it now and then for sure, so yeah.