First of all, I would like to make 2 things clear
1. Being addressed as a daughter vs being a daughter
In Mahābhārata:Śāntīparva:Chapter 50, it is stated that when Paraśurāma cleansed the earth of kṣatriyas, lawlessness reigned supreme & Bhūdevī, unable to bear the burden of sinners, started sinking down into the netherworlds. To save the cosmic order, the ṛṣi Kaśyapa held Bhūdevī on his right thigh & since the right thigh is reserved for daughters (the left thigh being for wives), Bhūdevī is also figuratively called as the daughter of Kaśyapa, hence one of her names is Urvī (She who is held on the thigh). Now Bhagavāna Viṣṇu had already blessed Kaśyapa by manifesting as his son in His Vamana form, so Bhagavāna Viṣṇu can also be figuratively stated as a son of Kaśyapa (Kaśyapa did reincarnate as Daśaratha & Vasudeva after all).
So you can say - Bhūdevī & Bhagavāna Viṣṇu can be considered as siblings, so is their union incestuous ?
Obviously not, because Bhūdevī was not the actual biological daughter of ṛṣī Kaśyapa. And even before incarnating as Vāmana & Paraśurāma, Bhagavāna Viṣṇu had already made Bhūdevī His wife in His Varāha form.
This is my point - figurative speech shouldn't be taken in it's face value. In Bengali, fathers-in-law often address their daughters-in-law as mā (which means mother), but does it then imply that the union of that daughter-in-law with her husband is incestuous ?
2. Sītā as the daughter of Bhūdevī
This is a very big misconception. Sītā devī is figuratively called as the daughter of Bhūdevī because She was found there similar to how Bhagavatī Lakṣmī (who had actually manifested as the daughter of ṛṣi Bhṛgu & his wife Khyātī after the kicking fiasco) is figuratively called the daughter of the ocean - but as we know by now, figuratively speech shouldn't be taken in it's literal value.
Then who are the actual parents of Sītā ?
Sītā devī's birth story is rather complicated. It is mentioned in detail in the Adbhūta Rāmayaṇa:Chapter 8. According to it, Rāvaṇa, desirous of subduing everyone & everything, was roaming around the cosmos, when he came across some ṛṣis in Daṇḍakāranya. Not wishing to kill them, Rāvaṇa extracted their blood as a symbol of his dominance over them & his completion of the conquest of subduing the cosmos. As ordained by destiny, he stored the blood in a pot containing milk stored by ṛṣi Gṛtsamada for consumption of his wife who had obtained the boon of gaining Bhagavātī Lakṣmī as her daughter from Bhagavāna Viṣṇu. Rāvaṇa was unaware about it because Gṛtsamada was not present in the spot at that time.
Rāvaṇa took the blood in that pot back to Laṅkā & lied to his wife Mandodarī (because rākṣasas are described to enjoy drinking blood similar to how humans enjoy drinking alcohol) that the blood in that pot was as toxic as poison. Later that day, when Mandodarī found Rāvaṇa cheating on her by indulging in sex with the women from deva, dānava, yakṣa & gandharva families (whom he had supposedly kidnapped) in celebration of his conquest of the cosmos, she attempted to commit suicide out of grief by consuming the aforementioned blood as a substitute for poison. Instead, as ordained by destiny, Bhagavatī Lakṣmī, who was present in that milk, manifested into a corporeal form inside Mandodarī's womb. Rāvaṇa was busy for an entire year enjoying sexual pleasures with the women he abducted, giving enough time for Mandodarī to nourish her pregnancy, & when the time came for delivery, she left Laṅkā in the name of pilgrimage, delivered her daughter, concealed her underground & left the spot. She was then found & subsequently raised by King Janaka of Mithilā, who named her Sītā after the furrough in which she was found.
Why Mandodarī ?
According to Adbhūta Rāmayaṇa, when Rāvaṇa sought the boon to conquer the cosmos, he didn't had any daughter, so he asked Prajāpati Brahmā that let his death occur if he harboured carnal desire towards his daughter. Brahmā granted this boon & destiny cruelly cheated Rāvaṇa by making Sītā born out of Mandodarī, making him her father by proxy.
