All depends on their ages really, I thought pippin-forte's explanation was really good. As his behaviour worsens they will need to know to avoid confusion and even fear on their part. I always think the more upfront one can be the better.
We were in a similar position to you when my husband (Nats) was living at home. My daughter, son-in-law and their daughter lived with us. As the Alzheimer's progressed, unfortunately Nats became quite volatile and could be physically aggressive. Mainly towards me and occasionally to our daughter. Never to our grandaughter. However, when she was two yrs old, Nats' psychiatrist, much to our dismay and horror reported us to child protection. My daughter was devastated, imagining all sorts of issues.. The outcome was we were not allowed to mind her without an other adult being present. This was extremely difficult when our daughter was working.
I tell you this just to warn you and others what can happen. Your grandchildren may be much older and therefore the above irrelevant I hope so.
Keep in touch. x