Why can't I use series 3 watch (with GPS and cellular) for my daughter for family share?

If your daughter doesn't have her own phone;

What you need

• An Apple Watch Series 4 or later with cellular, or Apple Watch SE with cellular, with watchOS 7 or later.
• An iPhone 6s or later with iOS 14 or later for the initial watch setup.
• An Apple ID for yourself and one for the family member who will use the Apple Watch. Your Apple ID needs to have two-factor authentication turned on.
• A Family Sharing setup
• that includes the person who'll use the Apple Watch. You'll need to
• have the role of organiser or parent/guardian to set up an Apple Watch
• for a family member.

That is from this page;

Set up Apple Watch for a family member

Why Series 3 cannot be used with Family Sharing? We don’t know. Apple hasn’t indicated, past the “no”.

We do know that Apple has special procedures for updating Series 3 models:

… If you don’t have enough space to update your Apple Watch - Apple Support

Available internal storage has been an issue for that series for a number of folks.