When it does, I usually see flattening of the baby teeth almost if you had placed them on a sander. Sometimes it can look like back teeth in the photo here sort of like a bowl shape. Sometimes there are associated factors that might aggrivate the situation like esophegeal reflux causing erosion of the enamel.
What to do? Well, even though it sounds awful and eventually can look funny, there is not much you can do. More importantly, usually there is really no need to do anything. As the enamel wears away the teeth flatten out, the dentin (inside more yellow layer) wears away even faster, sometimes leading to funny looking teeth like in the photo. It does not hurt as the pulp "scars" back out of the way about as fast as the kid grinds away the tooth structure. By the time you would see real problems due to lost tooth struture, the teeth naturally fall out. Very few cases I have ever seen where we needed any kind of restorative treatment or extraction.
What about a night guard? I might consider such a thing in adults who are grinding and doing damage to permanent teeth, that is more of a concern, but in kids-no. You would have to remake the thing so often due to growth and the kid would never wear it. Plus, like I stated, there is no real benefit.
"But the noise is driving me crazy!" First, get your pediatric dentist to take a look to make sure what is going on. If everything is ok, the grinding will likely reduce and most of the time go away by the time the permanent molars settle in around 7 or 8 years of age. Oh, a good set of earplugs for the parents does not hurt.