A toddler with bad breath could indicate an infection. The child may have something stuck in the nose or the beginning of strep throat. Call your pediatrician and ask for suggestions.
It can be a sign of tooth decay, but more likely is it common bacteria in the mouth that is harmless. If the smell doesn't change or is constant then mention it at a well check.
No you don't need to be worried that your child has bad breath. You just need to watch and make sure that they are brushing their teeth the way that they are suppose to be. And help them to brush their tongue as well cause bad breath and come from there.
Bad breath could be a sympton of poor dental hygiene, overuse of pacifiers, sinus problems, dehydration and reflux. Talk to your pediatrician to be sure of what is causing it.