My mum never did understand that she had Alzheimers. In her eyes there was nothing wrong with her (except that she was a bit forgetful and that happened to old people
) so she would get very upset and annoyed if anyone tried to suggest that there was a problem. I never used the words Alzheimers or dementia to her - I always talked about her "memory problem".
My OH is now the same. Before diagnosis one neurologist stated categorically that OH did not have dementia! There is now no doubt that this is progressive, but OH has latched onto that and wont accept a diagnosis of dementia.
Its called anosognosia - you are truly unable to understand that you have something wrong with you because the part of the brain that understands this has been damaged - and this is a very common symptoms in dementia of all sorts. If someone has anosognosia then you will
never be able to make them understand. Even if they say that they have dementia they will deny that it is causing problems. Quite often they know, deep down, that Something Is Not Right, they do not realise that this Something is actually them. Usually they think it is someone elses fault - often the main caregiver. OH realised that he was no longer doing thing that he once did, but thought it was because I was stopping him. He did not realise that he just couldnt do them anymore.
I would tell the children, but perhaps drip-feed the news because they probably wont be able to take it all in at once.