Hi
As far as I know, the children do not need to be residing in Canada. However, if they never stayed in Canada, they would be close to losing their PR due to residency requirements. You are only allowed up to 1095 days (3 years) outside. They can not get citizenship if their PR status is in question.
They have to be residing in Canada, although don't require 3 years residency if one of the parents is a Canadian citizen, but their residency requirement can't be in doubt.