I have a blog category with children categories like 'news','personal', etc. No blog item is specifically assigned the blog category. I'm using the Archive functionality of the Module Archive K2 Tools to display articles only from the blog. It only seems to offer the functionality of display all categories or a specific one so by default it won't work with just selecting the 'blog' category as nothing appears. I've made changes to the helper.php file so that it also returns any children categories so when I specify the blog category it works correctly, brilliant!

Except the links don't work now as they also seem to only display items for the specific category and not any children. The link looks like this:
/index.php?option=com_k2&view=itemlist&task=date&month=4&year=2012&catid=4

catid=4 is the blog category. So is there a parameter or setting somewhere to tell K2 to to also view children categories or if not what file/s do I need to look in to code this myself.

By default no. Unfortunately in this view and you cannot pass any params.

Since you modified the helper.php file you can manually modify the query to limit its results to certain categories instead of a single one.

Since you edited core files remember to always keep a backup of your edits.