Figure of speech child found in stories — that's an understatement (7)
I believe the answer is:
litotes
'that's an understatement' is the definition.
(I've seen this before)
'figure of speech child found in stories' is the wordplay.
'figure of speech child' becomes 'tot' (I can't explain this - if you can you should give a lot more credence to this answer).
'found in' means one lot of letters goes inside another.
'stories' becomes 'lies' (to tell stories can mean to lie).
'tot' inserted within 'lies' is 'LITOTES'.
Can you help me to learn more?
(Other definitions for litotes that I've seen before include "no overstatement" , "Town of N. Norway" , "Ironical understatement (grammar)" , "No little pain, say" , "Understatement for rhetorical effect" .)