... You can give anyone a permanent place to stay in Lilaya's house; they can work jobs while living with you. ...
... My biggest QoL wish rn is being able to name your kids. Late game you just end up with so many it's hard to keep track because the name randomizer can only do so much.
Yeah, they can still work, but it's always a temporary arrangement and it definitely feels like it. Like couch surfing. It doesn't help that in-story it's Lilaya's house, and you get the feeling you're not supposed to stay there for very long. With the way the game's being set up now that more than just Dominion is available, it seems extremely out of place to just leave your new beau in your aunt's house that you only visit once every few months. You could take them with you as a companion, but then you miss out on a lot of the interaction mechanics because Inno decided "Fuck that, I put that in too early," and stopped working on companions. And if they have a job they disappear and travel the whole goddamn way back to Dominion.
As for how kids come to be, I think that was just filler content that's stayed around for way longer than intended. That theory seems a bit more plausible when you look at how random generation for kids occurs, plus the random encounter chance on an unoccupied Dangerous tile. Considering the depth of the other housing mechanics, some of the mechanics surrounding pregnancy, and the initial interactions once you discover your offspring, there's a lot pointing to a currently unimplemented choice immediately after birth between kicking your little crotch goblins out or keeping them around. For instance if you knock up a slave, shouldn't the child be born into slavery as well and thus either pop up in Slaver Alley if you don't have a room, or have a screen where you can assign them a room if one's available? Or if you impregnate someone you took in or freed, shouldn't they get a say in whether or not the fruit of their loins gets thrown out on their ass?