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You already have dual citizenship.Because you are born in the US you are automatically an American citizen.Because your mother was Canadian when you were born you are automatically Canadian. You simply have to apply for proof of citizenship. You can do so here:http://www.cic.gc.ca/english/citizenship/proof.asp
Once you get proof you can then apply for a Canadian passport if you wish to get one.Let me know if you need any further clarification.
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They would not be Canadians as they are in the second generation born abroad and so the rule doesn't apply to them. It just applies to the first generation born abroad.
Is there anything more I can help you with at this point in time?