You want children to experience the good kind of stress. The kind that challenges them in the moment but is then overcome, either because the stressors end or because stressful situations are properly comforted, allowing a child to move on. When stress lingers, it becomes toxic.
Toxic stress causes all types of problems, both physical and psychological. As a Harvard University brief from the Center on the Developing Child states: "When we are threatened, our bodies activate a variety of physiological responses, including increases in heart rate, blood pressure, and stress hormones such as cortisol. When a young child is protected by supportive relationships with adults, he learns to cope with everyday challenges and his stress response system returns to baseline. Scientists call this positive stress. Tolerable stress occurs when more serious difficulties, such as the loss of a loved one, a natural disaster, or a frightening injury, are buffered by caring adults who help the child adapt, which mitigates the potentially damaging effects of abnormal levels of stress hormones. When strong, frequent, or prolonged adverse experiences such as extreme poverty or repeated abuse are experienced without adult support, stress becomes toxic, as excessive cortisol disrupts developing brain circuits."
Cortisol, the stress hormone, can lead to learning disabilities or other cognitive impairments because it suppresses the growth of brain cells in critical regions of the brain. Chronically stressed children have been shown to have significantly reduced neural activity in certain areas compared to that of their healthy peers, and they have also been found to have some brain regions that are significantly underdeveloped with a lower brain weight or volume of gray matter. Toxic stress also contributes to anxiety disorders and emotional problems such as depression. Perhaps most worrisome, a child's brain is organized according to their environment. So when a child experiences chronic stress throughout their childhood, the brain organizes itself accordingly; creating more stress receptor cells and becoming hypersensitive towards perceived threats. In other words, too much stress early on wires a child's brain so that they experience much more stress throughout the rest of their life.