The expression “free range” usually relates to animals - often chickens and cows that range or go looking freely for food, rather than being closed in a cage or yard.
So the idea of a free-range kid is that the child was allowed a fair amount of freedom by their parents while growing up. It’s said that this group of kids are more likely to thrive than those who are strictly monitored by parents. Allowing one's children free time is called free-range parenting.