I know I would have to fix it properly-take it out and restitch it. However, logic says that fr a 3 year old--maybe a quick fix is in order. In your family would this quilt become a "memory of childhood" or will it be outgrown and given away? That would enter into the decision.

I would fold it over and stitch it, but I don't see the need to snip it. This is a busy pattern and most of this will be lost in in it anyway.

Since it's flannel,I might wash it first, before hand stitching it down. It's not a huge pleat, so it might mostly work itself out.

I'd have to remove it....just knowing it's there would bug the heck out of me.

My grandson was in a hurry for a quilt when he was about 6. He picked out some flannel at WM. I straightened the cut edges, folded them over and sewed them down. He was as happy with it as a 6 year old can be.
So do what will get it to your grand daughter fastest, and enjoy her happiness.