Family Jewels are an added feature that CryptoKitties introduced post-launch1. Players were keeping track of the first kitty to achieve a mewtation and using this as an added element to the collectibility of CryptoKitties. CryptoKitties embraced this and added the Family Jewels features which adds extra notation showing the family lines that descend from this kitties along with awarding a gemstone to the first 500 kitties to have a cattribute or achieve a mewtation.
Members of the community found that fancy cats were breaking the lineages for family jewels. This meant that even though the fancies may have had the genes which should carry the family jewel, their offspring were starting new family jewel lines. This lead to a family jewel update which fixed this issue2.