Here is a question for you grammar nerds, is "bébés" describing "animaux" or is "animaux" describing "bébés" in this sentence?
"bébé" is a noun ("bébé(s)") and not an adjective. "animal" is a noun ("anima[l/ux]") and an adjective ("anima[l(e(s))/ux]"). French rarely combines two nouns, which is common in English where one of them is used as an adjective, e.g. "car alarm". An example in French is "porte-monnaie". Note it is hyphenated whereas "bébés animaux" is not.
My conclusion based on all this is that "animaux" is being used as an adjective, so "les bébés animaux" would literally mean "the animal babies". However, you'd have to ask a native French speaker if that's how they think about it.
This seems to be one of the cases where two nouns are allowed in apposition in French. Larousse specifically allows the noun bébé in apposition to another noun when referring to a baby animal. Maybe that is why Duo has included this exercise.
This would be very awkward construction in English. The common phrasing is 'baby animals'
I don't know why when I heard "Les bébés animaux sont mignons" I wrote "Babies are cute animals" LOL
I translated 'mignons' are sweet. According to my Collins/Robert French dictionary 'mignon' means sweet or cute. Why have I been marked wrong?
Yes, it's okay. "Mignon(ne)" may also be used as a noun as a familiar term of endearment (darling, sweetheart, sweetie). Per the warning of RuthZ1, you would not use it for anyone with whom you are not on very familiar terms.
Maybe be cautious if refering to an adult, but no problem for a baby or a nice photo. I remember having the reverse conversation with a French speaker once, i.e. could you call people cute in English...