My husband and I have been to Crete several times and really like this island.
Crete is a lovely and perfect island for children, offering many museums with all the extraordinary ancient Greek items. I suggest the northern area which is most suitable for you and your kids and here you can choose between Rethymnon or Chania area. In Rhethymnon you can find many nice accommodations.It has a nice harbor with tavernas and a very nice old town to walk around in. The long beach is also good to enjoy, because this is a real pearl.
Whenever we go there I buy honey, herbs, clothes and my husband likes to buy leather goods.
Crete is a friendly and safe place so enjoy with your children.