You get a baby by talking to the wife, tell her you want a baby, then fight 10 battles in order for it to be born. And no, the baby is not placed in a random free slot, the baby is placed in slot 11, that is, the one on the upper right. If you have something equipped there, it will be moved to inventory. I've never gotten to baby #2 but it's placed either in slot 9 (upper left), or slot 12 (bottom right). Since the babies are weak in vanilla game, I suggest you either don't have any, or try my TNG mod (found in mods section, obviously). For the latter I suggest waiting until I release the next version, the current one is still somewhat imbalanced.
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