The nursery makes the children lose their sense of right and wrong because it is part of a high tech "Happylife" house that has taken over the parenting function. As their mother, Lydia Hadley, points out in the story, "the house is wife and mother now and nursemaid." For the children, the focal point of the Happylife house is the nursery's giant viewscreens. Beyond that, the house itself does everything for the family, including feeding them and rocking them to sleep. Because of this, the parents feel displaced and increasingly concerned about the spoiled and demanding behavior of their children.
When the children become attached to the fantasylife displayed on the viewscreens, they become alienated from their real parents. They get used to the idea that they can do whatever they want. The nursery, where they spend the bulk of their time at home, starts to command their loyalty far more than their parents. But the viewscreens teach the children, literally, the law of the jungle, not the morality of human parents. The nursery, with its repeated images of lions devouring prey, teaches the children to be predatory. It reprograms their sense of right and wrong to teach that killing is normal. When their access to the nursery is threatened, as well as the nursery itself, which the parents plan to shut off, it doesn't take long for the children to become like the animals the viewscreens have taught them to admire.