Loli is a term used to describe young girls (short form of lolita - "a slang term for a sexually attractive, seductive or precocious young girl" (c) wiki)
Not quite. It's actually used to refer to anime characters that have the physical characteristics of young girls. You know, weeaboo territory stuff. The theme has become increasingly prevalent in anime as of late.
The history of the 2-syllable word "loli" to refer to prepubescence is pretty interesting. Of course, it began as the Lolita of Nabokov's book. Some decades later, Japanese street fashion then co-opted this term to refer to a coquettish fashion style with Victorian motifs; for an analogy you might consider it similar to how steampunk wears and reinterprets the outward look of mechanical automatons.
I don't quite get the original choice of naming outside of perhaps the lack of awareness of cultural subtleties and connotations that underlie cultural appropriation, but it is apt, since choosing to dress in such a way is a voluntary choice to want to be seen and viewed as a (perfect) and very youthful doll more as something to be admired from a distance than to be interacted with—perhaps the notion of sexual immaturity was seen to reinforce Victorian prudishness and vice versa. The way things get verbally abbreviated in Japanese is that they tend to be abbreviated into abbreviations of 2-mora or 4-mora, roughly corresponding to 2 syllables or 4 syllables. Hence Lolita was quickly abbreviated to loli in casual speak.
From there, the usage of the word loli further evolved in Japanese anime-related media. "loli" probably started off as a not-very-common archetype of female character who looked like the idealized lolita dresser—a doll-like prepubescent person with "refined" manners. Perhaps with influence from the original meaning of Lolita, at some point loli was generalized into the (by now common) prepubescent female character archetype in anime-related media, regardless of whether or not the Victorian-motifed dresses accompanied it.
Somebody didn't like the joke about selling one.