When you're a kid, you notice every little nuance about how adults speak to you. If your parents, teachers, or relatives treat you differently from your siblings or your peers in any way, you will pick up on it and stew about it for a while. If your parents call you smart but they call your sister pretty, that's obviously going to have an effect on you in the long term. It's important to treat kids equitably, even if you're possibly stretching the truth a little bit.
One uncle recently asked Reddit if he's the bad guy for complimenting his niece but not his brother's stepdaughter. He was getting pretty irritated with his brother's wife fishing for compliments on behalf of her daughter. He complimented his niece's appearance, and after his sister-in-law asked if her daughter was gorgeous too, he snapped and said she wasn't gorgeous. Talk about going way too far!