She (my granddaughter) downloads free games from the App Store.
They will still ask for a password to install even if they are free.
Can she set up another Apple ID on the iPad using the other email addy?
Yes. All it takes for a different Apple ID is a different email address.
She'll want to delete anything installed with the other addy and reinstall under the new one. She will lose any scores/data from the games BTW.