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Well according to Memory Alpha, Denise came up with Sela being the daughter of Castillo and Yar:

• According to Crosby, “The part of Sela sort of came about from me sitting around in my house one day thinking about how much fun it was for me to go back and do ”Yesterday’s Enterprise“, and it was so much fun that I thought what else can I do? I thought it was pretty well established that Lt. Yar and Lt. Castillo on "Yesterday’s Enterprise” had something going so perhaps they had a child or Yar was pregnant when she went back into the past to fight her final battle. And I sort of thought it out and it seemed to really make sense, and there were no flaws.“ Additionally Crosby stated, ”So my original intention was that Lt. Yar would have a daughter that was raised by Romulans and would grow up to try to actually be a Romulan. So I brought this up and the producers really liked the idea and they sort of toyed with it for a while. A few months went by and I got a call and they said we like your idea but we just can’t make sense of that Lt. Yar got pregnant by Castillo. We’ll have it so that Yar was captured, they didn’t all die in the battle, the ship was captured and she was taken by a Romulan general.“ (Trek: The Next Generation Crew Book)

Another interesting bit is that Ronald D. Moore talks about the initial pitch and the some of the changes

• Moore noted some problems in incorporating the Sela plot into the show. ”It was tough to write and I knew it would be confusing and that, in essence, is the difficulty with doing continuity on the show. It’s fun and gives us the sense of being a real place, but you have to explain it to people who haven’t seen all those other episodes. It was not an easy explanation – that all came from Denise. She came up with the concept, which I rolled my eyes at the first time I heard. But as we started to get into story on ‘Redemption II,’ I needed some sort of Romulan thing to actually happen this time since we kept saying they’re doing this stuff. It just seemed natural. It fit and we did it.“ (Captains’ Logs: The Unauthorized Complete Trek Voyages)