As far as I am seeing on Snopes and CBS News, this 7-Up ad was a real ad in the 1950’s.
NOTE! There is almost the same image circulating that claims to be about giving beer to infants. That is a FAKE ad. It looks virtually identical as this one, but replaces 7-Up with beer. Same baby etc.
There is also a “Soda Pop Board of America” fake ad, with the tagline, “For a Better Start in Life, Start Cola Earlier”. It also features a photo of a baby, but looks different from this. That ad is also FAKE -> Hoax Ad
They’re mixing Cream Soda with milk, and surprisingly no, the milk doesn’t curdle despite being highly acidic. I have not tried it with 7Up, but it also works with both Coke and root beer.