Sonic Colors is probably the best Sonic game since Sonic 3 & Knuckles. It's not my favorite, but it is the best. It has a wonderful, whimsical, hilarious plot, beautiful scenery, challenging gameplay with a steep but manageable difficulty spike, and a nuanced, subtle look at the Sonic-Tails friendship.
I could tell you guys all about the gameplay, the lovely music, the beautiful scenery. You don't care about that.
You care about whether it's ok for your kids.
If your kids are old enough to understand what is actually happening to the wisps, it will probably frighten them on some level. I think this hits older, adult players harder. Some of the robots are so cartoony that it isn't clear they're not organic, and some of the robots have feelings. I don't think the whole "sonic smash robots, robots are safe targets" thing works for this game. It's just too ambiguous; kids younger than 6 might try to copy Sonic's moves without thinking it through, and older kids might not realize that hitting normal people is not ok, since Orbot and Cubut are both robots and speaking characters.
One of the highlights of this game is Sonic and Tails. They banter, and at at least one point they bicker, but in the end their friendship and devotion to each other triumphs over their petty conflict. Yacker, too, proves a loyal friend and a wonderful roll model. The wisps in general are generous and kind, and Sonic is able to blend a sort of complete self-direction as a tourist with saving innocent people without a second thought as a hero. The perfect picture of an American hero in a Japanese game.
The theme park itself is actually somewhat educational, satirizing and deconstructing the consumerism in amusement parks. It's really funny and really well-done.
The game as a whole also introduces the idea of ulterior motive to very young players. Something you'll want to talk about with them.
One big concern I have is that playing with the wiimote and nunchuk can be painful for people with joint problems. If you have any history of wrist or arm injuries, use the Gamecube or Classic controller, please.