Yes, children can watch sumo. For the 15-day Grand Sumo Tournaments, children 3 years old or younger can enter for free if they don’t need their own seat. Some of the 1-day special events have different policies for age of children who don’t need a ticket, so please ask about these.
Some of the events now have Family Tickets, which give a discount for families or groups with children. There are no other discounts for children.