In Chapter 6 of To Kill a Mockingbird, how does "One Eye, Two Eyes, and Three Eyes" relate to the story?

In Chapter 6, Jem decides to return to the Radley house in the middle of the night to get his pants back.  Scout does not want him to go and threatens to tattle.

After a period of quiet, Jem says to Scout, "'Sleep, Little Three-Eyes?'"  This is referring to the Grimm's Fairy Tale called "One-Eye, Two-Eyes, and Three-Eyes."  In the story, there is a sister with three eyes.  The three-eyed sister is supposed to watch her two-eyed sister.  The sister with two eyes sings a lullaby to the sister with three eyes, in hopes that she will fall asleep.  Two out of the three eyes on the three-eyed sister fall asleep.  Her third eye is awake in the story.  The two-eyed sister thinks that her sister is completely asleep.  Instead, the three-eyed sister spies on her with her one awake eye.

Jem refers to this part of the story when he mentions "Little Three-Eyes."  He is pointing out that Scout is awake and is watching him to make sure he does not sneak out to the Radley house.  This reference to a story within another story is called allusion.