Imo it's realistic. It's still child labor (which I do not condone) but it's not slavery, they gave him a paying job that he can quit anytime he wishes. And obviously a malnourished kid his age can only do mundane chores like cleaning while regaining the strength he should have at his age, so he can't train to be a knight yet. They left all the other kids free, they probably just ended up in the streets with a much harder time looking for a job, so Theo is quite likely one of the luckiest kids that were freed from that hellhole. In their country the crown prince is expected to stab the current emperor in the heart for the crown to be passed on, I reckon they're not the most advanced in terms of ethics and morals. Or maybe the rest of the kids were placed in an orphanage (although it didn't sound like that to me), but Theo INSISTED himself that he would go with Chloe. Obviously he can't be treated as a guest, if he wants to stay he's got to provide some kind of service, as fucked up as that might sound in today's society. I feel like one way to solve this would be to appoint him as Chloe's playmate, but we'll see as this goes on
You could've made the poor child go to school! and given him to a family who wants to raise a kid and care for him, you could've even taken him in as a little knight in training! but nope let's give him more chores but this time with a different outfit because we are the good guys in the story and we won't make him wear a dirty potato sac like his previous evil owner, he better clean those floors though with hiss new outfit!