The last answer is not entirely correct. Both my wife and I have iPods with our own separate libraries and playlists, on the same computer. In order for your son and daughter to do this, they will have to have their own user accounts on your computer.
Music from copied CD's is stored in a central location on the computer, not in iTunes. So any user of that computer can dip into it and add music from there to their own iTunes library.
My wife did this recently, when she got her iPod and wanted to load some of my music onto it. She's a bit more savvy than me with computers, so I don't know the detail. As far as I remember, you won't even have to download iTunes a second time for this purpose either.
I don't think the same applies to music bought via the internet though. They may have to buy separate copies of songs that way.