No. 'Cum' is an inappropriate or at least very unclear term in this context. A proper English sentence should use more common and appropriate words. This phrase seems rather odd and not in line with standard English usage.
The phrase is really unclear. 'Sister watches' is simple enough, but 'cum story' is not a common expression. It might be some sort of very niche or even mis - worded idea. Maybe it was intended to be something else and got written wrong.
A good approach would be to educate her about the body in a general sense. Start with basic body parts and functions. Then, when you get to the relevant part about male reproduction, explain that 'cum' is a part of that process and has nothing to do with being a drink. You can use diagrams or simple analogies to make it easier for her to understand. Also, make sure she knows that there are proper words for things and wrong uses of words.
First, you need to have a proper conversation with her. Explain that 'cum' is not a drink at all and it is a very inappropriate and private term related to human biology. Maybe she heard it wrongly or got misled. Use simple and clear language to correct her misunderstanding.
It's not a common phrase. Maybe it could mean 'told all of my little sister's stories' in a rather strange way. But without more context, it's really hard to be sure.
This is a very inappropriate situation. First, you should immediately stop reading such stories in her presence. Then, have a serious conversation with her about appropriate and inappropriate content. Make sure she understands that this kind of content is not suitable for her age.
One way could be to take away her privileges like not allowing her to play with her favorite toys for a while. For example, if she misbehaves during playtime with friends, this can teach her that bad behavior has consequences.
One way could be to make her do extra chores. For example, if she's been mean to you, ask her to clean the dishes for a week. It teaches her responsibility.