Katy’s behavior is very common. It is the feline equivalent of a child sucking his thumb. They do it when they are relaxed and comfortable. It is especially common in younger cats. And, it is generally harmless.
Some cats suck on sheets or clothing. Since they are limber creatures, many cats suckle their own nipples. A favorite nursing spot for some cats is an ear lobe of a person in the house. At 4:00 in the morning, this is very annoying indeed!
If Katy’s behavior bothers you, then gently correct her and encourage her to stop. Over time, there is a good chance that Katy will outgrow the habit. But even if she doesn’t, rest assured that it will probably never cause her harm.