What type of wood to use for low garden wall, in ground?

Hello Matt D! This sounds like a great project for the kids. Consider using 6x6 landscape timbers available at your local home improvement center. The link below is the "Installing Landscape Timber Edging" Project Guide for raised beds - but the information will be similar for your children's play area. There are some great options for mulch including rubber mulch - popular at schoolyards and will last many years. Best wishes on your project!