This passage teaches that we neither inherit sin nor righteousness. It is the character of little children that exemplifies what we should be in order to enter the kingdom of heaven. Heaven doesn't belong to those depraved in sin, but to those who are innocent, and pure. It is by our own choosing we sin and separate ourselves from God. This is speaking of spiritual death.
Death is simply a separation.
Physical death occurs when the soul is separated from the body. Spiritual death is a separation between man and God. However, God has provided a means of having sin removed through the death of Christ. We come in contact with His death through repentance and baptism. I hope this helps.