When you lie on your side and bring your knees up to your chest, you are sleeping in the fetal position.
Some people curl an arm under their pillow to support their head while in this position, but others may not.
I sleep in the fetal position most nights as it's very comfortable to me.
Some people prefer to sleep stretched out, on their back, on their side or in the fetal position and they are all healthy and good ways to sleep.
You should sleep in the most comfortable position for you.