Try to remember that this was two very small children doing this, not an adult doing this to your daughter. It is not at all the same thing and will probably have no lasting effects on your daughter so long as it doesn't continue as she gets older.

You didn't mention what your brother's response was to the situation at all. Was he there? He does need to be told. You mentioned his kids had been in foster care. Something may have gone on that left his kids feeling that their behavior is okay. And I'm not saying they were molested by an adult. It is quite possible another child they were in contact with did the same thing to them that they did to your daughter. No telling. It will be important that he have his children evaluated by a qualified child therapist just in case further intervention needs to be taken. If he refuses to do that, you should contact child protective services with your concerns.

You handled the situation really well from what you described. Try not to bombard your daughter with questions and lectures on abuse. That might be more scarring than what actually happened. Just keep a good momma's eye on her and if you see any residual problems, you'll know what to do to get her help. I would definitely carefully supervise any interactions between the other kids and your daughter until you brother has had time to figure out how to handle this.