Is good and bad real?

When my daughter was about 4 she had a big crush on a friend of mine, Steve. Steve happens to be black (and very good looking, she had good taste). We were leaving the gym one day and going out to lunch and Steve was talking to a woman. My daughter was clearly jealous and commented "why is Steve talking to that peach girl". The girl was a red head and, well, peach in colour. I had never pointed out colour differences to Morgan so she invented her own descriptive words. Steve was brown, some people were peach, others looked light brown or bark brown or pale. They were all words that she chose to describe people.At another time around the same age Morgan was changing into her bathing suit with a little friend who happened to be a boy. Se looked at him and said "oh, you have a tail bum. I have a flower bum." Total innocence, no judgement, no shame. Again, just words to describe the differences between the sexes.How do we go from there to assigning qualities like good or bad, right or wrong, beautiful or ugly. My daughter thought fat people were great because in her eyes they were 'big and fat like Grandpa'. When she would be excited about seeing a 'fat man' we really had to try to calm her down so she didn't insult the person. How does fat end up being a bad thing? How does a particular race end up being better or worse than another? How do our experiences become good or bad? When we can look at other people, our experiences, and our lives without judgment and realize that there is no good or bad, right or wrong, we begin to realize who we really are - the divine beings that are capable of expressing compassion and loving kindness to all other humans, creatures and our world.