How to use taxonomy vocabulary with terms and children using views module
You are probably looking for the Simple Hierarchical Select module.

From the module's page:


  Simple hierarchical select defines a new form widget for taxonomy
  fields to select a term by "browsing" through the vocabularies
  hierarchy. The widget is available in node forms and as Views exposed
  filter.
  
  This module has been inspired by Hierarchical select but is much
  simpler (hence the name ;) ).
  
  Unlike Hierarchical select this module provides a simple widget for
  taxonomy terms only. As an addition Simple hierachical select works
  as Views exposed filter.


The Hierarchical Select module is still in development for D7 and the Views integration has not been ported, so SHS is the best choice at the moment.