My mother has dementia, and is starting to forget my daughter. How can I explain this to my daughter?
Great question. I think that the simple answer is that counseling could certainly assist your daughter with the grieving process. (For what it's worth, it could also assist you!) The other thing that a good counselor/therapist can do is further evaluate your daughter to determine if the distress she may be currently experiencing is the expected grief-response or if something else might be going on. Given that it sounds like your mother's passing was quite difficult, your daughter may have found aspects of it to be somewhat traumatic. A competent counselor/therapist would be able to help her in either event.
I'm very sorry for your loss and I'm hopeful that you are also taking good care of yourself at this time as well. In addition to counseling, this is another gift that you can give your daughter.