Gosh that i a hard one. Above all, I am so sorry for your loss and I aplaud you for putting your children first the way you have.
When my father passed a year and a half ago, I had children the same age and they didn't understand either. I knew that there were a few phrases that I had to stay away from so it didn't scare them further. Telling them that their grandmother "passed" would make them even more confused because they would wonder where she "passed" to. Telling them that she "went to sleep" and is now in heaven will really scare them and even cause sleeping problems for them.
We still talk about my dad a lot here and try to keep his memory alive. The 2 youngest were told that grandpa was so sick that the only way he could get better is if God brought him up to heaven to make him better. We cried while we talked about it, and that is good for the kids to see, but we've never let the kids see us lose control or go off the deep end, so to speak. The kids know that PaPa Cane is up in heaven looking down on them to keep them safe. My 5-1/2 year old now, shared a birthday with my dad so that was a very hard birthday for him this past year. We went to eat at the same restaurant for his birthday as we did with my dad the year before (our last night out with dad) and it was hard, but we had to put on a happy face at all times for our son. As we were leaving, there was a beautiful rainbow up in the sky. Instantly, my son thought it was his present from PaPa Cane! He was still talking about that just last week as a matter of fact.
We had dad cremated and my mother, my brother and myself all kept a small urn, called a keepsake urn, of dad's ashes. The kids know where they can go to find each of ours and they know that they must ask. They handle the urn very carefully and talk to my dad as if he was still there. My 5 year old has always had a special bond like that with my dad. Even at the wake, he went over to the stand, looked at dad's picture as he was kneeling down and then lifted his head up to the sky to talk to my dad. It surprised all of us and made it so there were no dry eyes in the place.
Let your children be as involved as they wish and let them understand that it is okay to be sad and to miss their grandmother but that this was something that grandma needed to do. They may be scared that you will do the same thing so reassure them that you don't have any intention of doing that but nobody knows when it is their time. It will still take a while to sink in for them, but that is usually the way it is for everyone for a while.
Wishing you the best of luck with your children during this time and my condolences on your loss.