No, babies don't understand the concept of "pretty" in the adult sense. While they may show preferences for certain facial features, this isn't based on an aesthetic judgment of attractiveness.
What Babies Do Respond To:
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Facial Features: Research shows newborns do prefer faces considered "attractive" by adults. [See: Newborn Infants' Preference for Attractive Faces: The Role of...] This preference is likely tied to biological factors, such as the average features representing health and good genes, rather than a conscious understanding of beauty. This is further supported by the observation that infants attend to faces with symmetrical features (also a sign of health).
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Positive Interactions: Babies respond more positively to people who interact with them calmly and happily. A cheerful demeanor and engaging voice are far more influential than physical appearance. [See: Do babies stare more at attractive faces? - Quora]
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Familiarity: As babies develop, they show increased preference for familiar faces, especially those of their parents. This is a learning process, not a judgment of beauty. [See: Do babies/toddlers/children know when someone is ugly versus...]
Misinterpretations of Baby Behavior:
It's easy to misinterpret a baby's gaze or lack thereof. A baby's attention is easily captured by movement, bright colors, and sounds. A baby might not look at someone deemed "pretty" simply because something else caught their attention. [See: Do babies stare more at attractive faces? - Quora] Parents often project their own biases onto their infants' reactions, interpreting a longer gaze as a sign of finding someone attractive. [See: So, is your baby the cutest baby to ever live? Does anyone think...]
In conclusion, while babies show preferences for certain facial features, they lack the cognitive capacity to judge attractiveness in the way adults do. Their responses are driven by innate biases and environmental stimuli, not an understanding of aesthetic beauty.
