Just to clarify, Kun's answer about the Auto State Updates switch applies only to the behavior of user stories when their child tasks are completed. It also only affects Schedule State, not the Ready flag. Your original question mentions child stories, in which case the behavior is quite different. The short answer is that a user story that is the parent to other stories is a special case and wouldn't generally use the Ready attribute because it isn't moved manually via board-style apps like the Kanban Board app, and the Ready flag still cannot be set automatically.
As to the Auto State Updates switch, it's ON globally by default whether or not you set the "Project Admins Can Enable..." switch. Setting the "Project Admins Can Enable..." switch to ON just allows project admins to turn the Auto State Updates switch off (or back on again).
Incidentally, I don't fully agree with the recommendation in the help docs about Scrum vs Kanban teams. The condition that disabling this switch guards against is unexpected changes to work item states. For example, if someone adds a task (accidentally or intentionally) to a previously Accepted user story without disabling Auto State Updates then the work item can be unexpectedly pulled all the way back to the Defined state. Alternately, let's say that you have an Accepted user story where a task was never completed because it was deemed by the team to be unnecessary. With Auto State Updates enabled (the default), if someone later moves that task to In-Progress or Completed then the user story will be moved back to the In-Progress or Completed schedule state.
I know, this is a long answer but to summarize:
- Nothing sets the Ready flag for a work item automatically whether it has children or not.
- Auto State Updates applies to work items only when they have child Tasks and is ON by default for all projects in all workspaces.
- This is an editorial opinion but I think that setting Auto State Updates to ON or OFF is a decision based on a team's work practices and not necessarily on whether they're a Scrum or Kanban team.
Hope something in all that helps!