I'm going to answer from a completely different point of view. The day before my son's second birthday, I was diagnosed with Stage IIA Hodgkins Lymphoma. Our daughter was 10.5 weeks old.
What kind of lymphoma does she have? I can help put you in touch with phenomenal resources for your mother through my connections. DO NOT accept 1 physician's opinion as the only way to treat her. I saw 3 lymphoma experts (including my own oncologist at Indiana University where Lance Armstrong was treated) before I chose how I was going to proceed. I went against my own Oncologist's recommendations for radiation after chemo.
Kids are FAR more understanding and accepting of cancer than you would expect. I lost 90% of my hair during treatment. I wore a wig to work because it made me feel better, but I hated it. I took it off as soon as I got home and went natural. We have 20 kids on the street, most were 10 and younger, no one ever asked me about it.
Losing your hair to chemo is devastating. Some women handle it better than others. I didn't handle it well because I suppressed all my other fears, worries, etc. into my hair loss.
I have 2 friends who have been diagnosed with stage IV lymphoma who would likely be happy to talk to her. One is a physician in her 50's who was a customer of mine and now a close friend. She's recently undergone a stem cell transplant for her recurrence and is doing really well.
Please send me a private message if you'd like more information. I really can help get you connected with people, organizations, oncologists, information in a quick way.
One recommendation for your mother is Imerman Angels, a non-profit organization that matches cancer fighters with survivors to help them through the process (Free).
Be HONEST with your daughter. Don't try to use analogies or books. Just be honest that grandma is really sick. The doctors are giving her really powerful medicines that will make her hair fall out so she can get better. Answer her questions honestly, let her go to treatments so she can understand better (my kids came to several chemo appointments with me). Having a child there really lifts the spirits of all the people receiving treatment.
I could go on and on and on.
Best wishes to your mom. Let me know if there's anything I can do to help.
Oh, and I'm almost 2 years cancer free - though, that could change any day.