1. noun - a baby that has two relations, ie both your grandkid and your neice.
1. Yea, Mary's son married her brother and had a kid, its a kentucky baby cuz its both her neice and her grandkid.
When your sibling and child decide to have a kid. Also, a combination of grandchild and niece/nephew. Most common among rednecks.
Billy: "Heeey, my brother Larry and my daughter Sally Mae are gittin' hitched!"
Jack: "Weeell, I s'pose we'll have ourselves a lil' kentucky baby runnin' 'round here right soon!"