I vote for honesty...here are my opinions as a single head of household with 2 kids...spewing in random order.
I'm sure you are correct in assessing that the dad is an idiot. You could phrase it differently however, because the kids are part of their dad.
You shouldn't guess at why dad isn't around...tell them that you don't know why he isn't there, but that they are 2 of the best kids in the world and he's missing a lot.
As time goes on you will have to teach them that being an absent father is not an appropriate option. Even if they are not living with their kids, they have to be responsible (pay for living expenses) and be around to raise them.
Families are not, I repeat ARE NOT always Mother, Father and kids. This is a myth. I know plenty of couple that consider themselves a family and don't have kids. I know gay couples with children and I know plenty of single moms and dads with kids. All of these people consider themselves a family.
I can only imagine what it is like to have 2 responsible adults raising a family together...must be nice. I am so fricken busy and doing the work of 3 people all the time. It really isn't fair that dad isn't around, but this is how it is.
I would refer to the kid's father as their birth father, no more than that...otherwise you are elevating him to a much higher position in their lives...one he is not worthy of.
I've heard over and over not to bad mouth the dad (from him) but I struggle so much to maintain that I firmly believe that my kids need to know what the real deal is. My 16 year old daughter needs to know not to get involved with the kind of guys I did (hint: irresponsible artists that don't really have a job), and my son must know that he must grow up to be different than his irresponsible father. Dad is around, but child support is zero. Dad is appalled that his son knows that he doesn't give me any money. Too bad! Get a job!
My son is being taught that he must do well in school so he can get a good job that pays enough to support himself and his family and have money left over for fun stuff and savings (we don't have any of that).
Something that I have done over the years is nurture and encourage my kids' relationships with families that have both parents around. This gives them the opportunity to see in action how 2a 2 parent household works. If it is a bad relationship I talk to them about what is going on in the family. (alcoholic dad (with mom working full time) leading to divorce and then the realization that mom drinks too much too). We have little to do with this family now.
I also have told other healthy relationship 2 parent family parents that I really like my kids being around them so they can get an idea of what a good family partnership is like.
We belong to a wonderful synagogue that is very supportive of our family. The kids feel proud of who they are and really belong to this community. It has been a tremendous help to have the support of so many other random adults to help raise my kids. Everyone has a stake in who my kids grow up to be...the awesome people that they are. My kids will go out into the world and help make the world a better place for everyone. Just like they are supposed to.
In conclusion: All of these things make a difference. Keep it age appropriate but tell them the truth.
Now, I have a question for you...how can you be a stay at home mom and support the kids?