Rhetorical device in stories enthralling small child (7)
I believe the answer is:
litotes
'rhetorical device' is the definition.
(litotes is a kind of rhetorical device)
'stories enthralling small child' is the wordplay.
'stories' becomes 'lies' (I've seen this before).
'enthralling' is an insertion indicator.
'small child' becomes 'tot' (I've seen this before).
'lies' placed around 'tot' is 'LITOTES'.
'in' acts as a link.
(Other definitions for litotes that I've seen before include "no overstatement" , "Understatement for rhetorical effect" , "Rhetorical understatement - toilets (anag)" , "not exactly truthful, for example" , "No small task, for example" .)