My sisters are the same way with our girls. I am the youngest sister, my middle sister lives out of state therefore we only see her once or twice a year. When she is here, she is all over the girls and they love it :) Her children are all grown now and so all that experience and insight is extremely helpful to me.
My oldest sister, Aunt ReRe to the girls, lives an hour away and visits at least one weekend a month. She and her husband were unable to have children for medical reasons. Sadly, when my oldest daughter was being born, my sister was recovering from a total hysterectomy. I was overjoyed with the birth of my child but my heart hurt for my sister's loss if that makes sense.
We all know when Aunt ReRe comes to visit, she will be doing bath time, crafts, reading books, playing games, and even has sleep overs in the family room with the girls. Poor Uncle Frank is banished from the sleep overs and alas has to sleep in our oldest daughter's disney princess room...lol. It's a girl's only sleepover so Daddy and Uncle Frank are not included :)
Uncle Frank also does a lot of special things with the girls as well, like reading and playing games, but he also makes them special dvd's with their favorite shows from WETA Kids and Disney Channel. They watch old classic cartoons together on his laptop and they sing and dance too. Many Royal Balls and tea parties have been held when Aunt ReRe and Uncle Frank come to visit. Bless his heart, the man even wears the feather boa's and tiara's if the girls ask him too.
My parents both died before my girls were born. Aunt ReRe and Uncle Frank assumed that role for the girls and we are so very grateful for them. They never miss a birthday or holiday with the girls. They take off work to attend Grandparent's day at school so my daughter will not feel left out. They come over every year to dye Easter Eggs. They spend the night every Christmas Eve to partake in the family traditions of baking cookies for Santa, sprinkling magic reindeer food on the lawn, going to Mass, opening one present on Christmas Eve from Mommy and Daddy. In the morning we skype my other sister's family and we all enjoy a relaxing day in our Christmas jammies together watching the kids open presents.
They do not overstep their boundaries as far as attempting to discipline the girls when we are in the room. They take the girls out to movies and to eat ice cream...yummy.
In short, they are in fact a backup "parental unit" to my girls. The girls have an amazing bond with them. God forbid anything ever happen to us, we know our girls will be well loved and they already have that family bond with Aunt ReRe and Uncle Frank.
I am not jealous of that relationship, in fact I encourage it. The girls will need other confidants as they grow and mature.
Try to look at it as she is not trying to assume your role in your child's life. Nobody will ever be able to do that. However she can certainly be a backup to you. Allow them to form this beautiful unbreakable bond. I promise you, you will not be sorry you did.
Peace and Blessings,
T. B