I solved it by changing the local account to a microsoft account. This error appeared on a laptop (not the original family device) so I forgot it was not logged in as a microsoft account.
Solution steps:
- On admin/organizer account: add child accounts, and make sure to log in to them the first time so they are fully set up. (If you go to the "Family & other users" tab now it will still show the error)
- Then on the admin/organizer account go to Your Info. (If you're having the same issue as me, under your name here it says "Local Account") Hit "Sign in with a Microsoft Account instead."
- Once that's complete, come back to the "Family & other users" tab, you should see that your child "Can Sign In". If you don't see that hit "Allow".
- Now log in to the child account and open Microsoft family safety on a browser: account.microsoft.com/family/home, and on the child's page there should show another connected device!