"Eu o spionez pe nepoata mea."

I suppose all languages have words that can mean more than one thing. Japanese or Turkish people might say “does brother really mean older and younger brother? Aren't they two separate ideas?”

Yes it does. I am Romanian and can confirm it.

It also derives from the Latin word that gives us "nepotism".

It is the same than in Italian: nipote means both "granddaughter"/"grandson" and "niece"/"nephew".

Many cultures merge lineal relatives (e.g., granddaughter) with collaterals (niece) and note that there is in each case here one linking relative between "EGO", i.e. the point of reference, "me" and the kinsman referenced.

Not really in a place where spying on family and neighbors is still probably done (for the sake of old days Romania with secu and Germany with Stasi and Rusia with .....

I thought so too. Couldn't understand the fascination with using such an uncommon word but ElRixIV's explanation makes a lot of sense.