"Not suitable for children's sleepwear" is included because the fabric is not treated to be fire resistant. Most children's pajamas, from what I know, are made to be a little more fitted, and treated with some sort of fire retardant (which then washes out over time, especially if you use dryer sheets) to help your child survive in case of fire.
That said, I use cottons to make PJ pants for my family all the time. Yes, they wrinkle, but they're PJ's. Nobody cares. (I don't make shirts because that's too much work when they can just wear a T-shirt which is more comfortable anyway.) If you want to make shorts or a cute little dress, I say go for it!
