My mother makes a lot of paper and I've done it, too. It isn't as scary as the previous posters are telling you. For preschoolers you won't be trying to make professional paper and the paper they make can be used to make holiday cards for their parents!
Either tear the paper into small 1"-ish pieces or shred it. Chop up the shredded paper to prevent it from winding around the blender blade.
Soaking the paper (clean mop bucket works well) in some water makes the blending easier. Blend the paper in small batches until it is pulped. Put the pulp into a covered container and use within a couple of days. Don't keep this mixture too long or it will start to rot and smell bad. Overnight or for a couple of days won't hurt.
Surprisingly, adding a calcium tablet helps the texture of the pulp so I mix one in while I'm blending it.
I suggest you do a large batch of pulp at home and do just a sample amount with the kids since their attention span is usually short. This way they can see how its done.
To form the paper, I use an embroidery hoop that has door screening instead of fabric. Mom has staple the screening to an old picture frame. Either works well. The limitation is that the frame must fit inside a tub of water, such as a plastic sweater box or dishpan.
Fill the pan so that the water is about 2" deeper than the screen. Add enough of the pulp so it is fairly thick in the pan. Slide the screen into the watery pulp and then gently pull it up, shaking it slightly to even out the pulp. With a little practice this'll come easy.
I turn my paper out onto some old towels topped with a piece of an old cotton sheet. Mom sometimes turned hers out onto the old towel: it gives more texture. Paper towels stick to the paper. This is okay because it adds sturdiness, but isn't necessary and the unbacked paper is nicer.
The paper has to dry, but it can be stacked as long as you have the cotton sheets between the papers. I hurry mine along by ironing it. This could be done while the kids are napping or something, but I don't like hot irons and preschoolers! They are so unpredictable. :)
You can tint the paper with paints, no special dyes are necessary.