So I asked her exactly what happened. She said he picked up daddy's razor and cut himself on it. There was a lot of blood.
That is most certainly not exactly what happened. It's definitely not the entire story. Where was the razor, why was it there, is that where it lives, how did the toddler get to it, what happened after? Those details, the most important ones, are missing.
As PP have said, 5yo children are eager to please, often say outrageous things, and their stories are not entirely reliable. Children that age simply do not have the perspective, benefit of experience, understanding of time and space, knowledge of consequences, basis for comparison of severity, etc., that we adults have. When they can't see mum, they are "alone". A drop of blood can be "a lot". A minute can be "a really long time". Little children talk complete bollocks sometimes - perfectly innocently of course, but bollocks just the same.
If you haven't told us the entire story, @FUNM, then you need to ask yourself some questions:
Do you really believe you have reliable evidence that the children are in danger?
Are you prepared to be the person who involved SS into your sisters life - with all the horror stories of families shattered and lives ruined due to mistakes, over stretched resources, etc; with the painful and invasive investigations; with all the stigma attached - based on the woefully incomplete story of a 5yo child?
And what do you want to come of ringing SS? A quick home visit and some childproofing advice that you could give yourself? A full investigation launched into your sister's family's home and private life? The children removed from their family and put into state care?
If you have told us everything, it sounds like normal life round your sister's to me.