Please forgive my posting anonymously, but I think I might be in a unique position to answer this.
Without going into too many gory details about my family history, my mother found out she was married to A Very Bad Man and, immediately, left him, taking my sister, her three-year-old daughter, with her. I was born later, in her second marriage, and growing up I was always aware that my sister had a different father and We Didn't Talk To Him. I didn't know why, just that he wasn't very nice, and my mother didn't want my sister or I near him. He would try to make contact now and then, send my sister birthday cards, but it wasn't until we were both a bit older that I remember my mother sitting me down to talk about what had happened.
At this point, my sister must have been around fifteen and I was ten or so. My sister's aunts, whose house we visited fairly regularly, were having my sister's father around, and he wanted to see her; she wanted to see him too, and while I couldn't say exactly what my mother's feeling on it was (at a guess: no, no, God no), I believe she decided it was safer to allow a controlled visit - even one she couldn't be a part of, stuck at work - than say no and risk my sister running off to meet him alone. She decided to send us both to dinner, knowing we'd look out for each other, and that her ex-husband's sisters, who she still knew well and trusted, would always be in the room with us. But she wanted to make sure I wasn't going to blithely wander off with her ex-husband, and she decided to tell me everything a day or so before we went.
I don't remember exactly what she said - which might stand as proof that this won't scar your children forever - but she told me that she left her ex-husband after he'd been found in the woods with an underage girl. She told me she had worried that he would do something to my sister, then, and while my sister's aunts were good people I could trust, she didn't want me to be alone with her ex-husband in case he did anything to me. I should tell someone straight away if he did anything that made me uncomfortable, and my sister and I were to watch one another and take care of one another.
She let me ask lots of questions and, believe me, I did. I can't remember quite what my mother said to me when I asked why my sister's aunts still wanted to be around their brother after what he'd done. I think it might have been along the lines of, 'Because they're still family and even though he's done bad things, they still care about him.' I remember having a hard time wrapping my head around that; I saw things quite black-and-white-ly, people were good or bad, and you didn't like the bad ones.
I also remember being scared during that dinner. I'd never been in a situation where I couldn't trust an adult before, and as a thoroughly melodramatic child, it surprised me. I made sure to sit as far away from my mother's ex as I could, I watched him like a hawk when he talked to my sister, and when he turned to me, smiled, and asked if I wanted a glass of wine - an act which, as an adult now, I think was him awkwardly trying to endear himself as 'the cool guy' but which then set off a 'stranger danger' alarm in my head that had me shrieking no and immediately telling my sister's aunt about it - I panicked. But nothing happened. I began to take cues from my sister, her aunts, their children, and while I didn't relax, it certainly never became a big, traumatic experience in my life.
I don't believe my sister nor I would have been in danger from him, but I do think my mother's decision to tell me - with far more honesty than she ever had (or, in fact, ever did after) talked to me about sex - was the right one to make. She answered my questions and while it did put me on edge for that evening, the fact she didn't act frightened meant I didn't have to be frightened, or untrusting of my sister's aunts. She just told me the facts, and told me why she was telling me them; she told me she didn't think I was in danger but it was important that I knew. She told me to not get into any situation where I was alone with him.
I think that's the best way to handle things in such a horrible position as yours: be honest. Don't be afraid to talk about the details, but don't fearmonger because it will only be confusing if one trusted adult says something another trusted adult can disprove. I think sheer politeness stopped me from saying anything out-and-out to my sister's aunts, but when I burst into the kitchen and, very pointedly, cried, 'He tried to give me wine,' I'm certain we all knew the subtext. I said I wasn't comfortable with it, and most likely mumbled something along the lines of, 'mum said, about the woods', and they 'yes well'd that, and bustled off abashedly to tell him off for offering underage children alcohol, and they didn't try to assure me he was a good guy, really. I'm quite sure if I'd said, 'My mum told me he's an abominable monster who will leap on me as soon as a grown-up's back is turned,' however, they would have jumped to his defence.
I think you're absolutely making the right decision in telling your children. I think putting trust in each of them to watch out for the other would also be a good idea, as my mother did with my sister and I. As well as adding to my highly dramatic version of events, it made me feel responsible - so I was more aware - but also looked after. My big sister had been told to look out for me, and she was soooo going to get told off if I got kidnapped or murdered.
I'm so sorry that you've been put in such a horrendous position, especially with your mother betraying your trust, but please believe children can understand something like this, and if you trust them with the knowledge, you'll keep them safe.
I wish you all the luck in the world. I know family issues are far easier talked about than dealt with, and I can only imagine how hard this must be on you right now. It won't be an easy conversation, but the best advice I can give you is to let it be a conversation: let them ask all the questions that spring to mind, and let them know they can keep talking to you about it. Ask them to tell you if their grandmother or uncle try to talk to them when you're not there, and make sure they know they're never going to be in trouble for something their grandmother or uncle does - that you'd rather know, and not to keep any secrets.