Let's break this down bit by bit.
"Dear Katherine Wilter" Should be "Dear Katherine Wilter,"
"This is a message regarding your sons mental health. Today in class we held an exercise where the children would write about their grandparents and what they do for them. This is what your son wrote:" "This is a message regarding your sons mental health." No one would say something like that so blatantly, especially not a someone at a school. "sons" Should be "son's". (not sure if my grammar is correct, I've never started a sentence with a one word quote before, so if I should still capitalize the quote or what comes after, please someone tell me." "Today in class we held and exercise where the children would write about their grandparents and what they do for them." Word choice is the really problem with this sentence. Not to mention you missed a comma after "grandparents" and "and".
"My Grandmother is the best Grandma ever! My Grandmother wakes me up every morning and helps me make breakfast and reminds me to brush my teeth! My Grandma helps me decide which clothes I should wear to school (She says I must get all the girls with my green and red overalls). Grandma says goodbye to me before mum drives me to school. My Mother says I must be going crazy." Okay, so a kid wouldn't be using parentheses when they are writing things like this. It's most likely a young kid, so poor grammar would be fine. Don't make it complex. Also, don't have him switch between grandmother and grandma, pick on. This should also be written like a child has written it. It'd be fine for words to be spelt wrong, punctuation in strange places. Make it feel like a child has written it, not like the teacher is still writing, we are reading something from another person, make it feel that way.
"My grandmother packs my lunch for school. Grandma likes to hear all about my day at school, and what I have learned that day. My Grandma even comes all the way to school, just to check if I have drunk all my water. My friends say I am strange." The mother and the friends are saying the same thing. I'd ditch the mother saying this kid is crazy and keep the friends bit. Again with the grandmother vs. grandma thing, as with the other writing style. Short sentences. Most kids will just say grandma, not my grandma. Some get the possession thing, but most think that their grandma is the only one in the world, at least that's what I remember in grade school. I felt like the odd one out for always saying my ___.
"It is very sad that we didn't have enough money to get a proper burial. She has to live in our backyard with my dog snowball." A child this age wouldn't understand this. Maybe have the kid bring the note home to their mom.
Overall, this story is pretty weak. It could be stronger, you'd have to build it up, let us know the people in it. Don't have it just be a note from the teacher, but show the relationship between mom and kid. Give them names. Maybe have some strange hints at things, then have the note come home. I'm going to be writing something that has a section which is somewhat similar to this, so I'm not going to give you too much information, I think what I've given you will have enough to really get you started though.