Gatsby reacts with surprise when he meets Pammy, Daisy and Tom's young daughter, for the first time. Although he knew she existed, the reality of actually seeing her startles Gatsby. Nick tells us he "kept looking at her in surprise."
This provides more evidence that Gatsby has constructed a fantasy world for himself and Daisy that has shut out the reality of how situations change as time passes. He wishes to turn the clock back to five years ago and believes he can do so. He wants, through a sheer act of will, to step into a prior existence and start over. As the hot afternoon unfolds, however, he will be presented with obstacles to his goal. Pammy is simply the first.
Daisy seems to have gone out of her way to make sure Pammy is presented to Gatsby and to demonstrate that she loves the child. Daisy explains to her daughter, "your mother wanted to show you off." Daisy also says "come to your own mother that loves you," calls Pammy "blessed precious" twice and calls her "you dream, you. You absolute little dream."
Calling Pammy "blessed precious" twice, while cloying, communicates Daisy's love of the child. Calling her a "dream" twice is especially telling, showing that there is more than one dream to consider: Gatsby might have his dream, but Daisy also has hers, and that includes her child.
Nonplussed as Gatsby might be by the reality of Pammy, she is not a fatal blow to his plans. That will come later, at Plaza Hotel.