We are planning a trip to WDW...We will be travelling with a very picky 3 and 5 year old and I think we have determined that the dining package will not be worth it for us.
How do we book a character breakfast, specifically breakfast at the castle with Cinderella, when we aren't on the dining package? When can it be booked?
Financially speaking your are the perfect candidate for the plan. If you do character meals they all cost more than the daily price of the plan for your 3yo and 5yo. That means the CS and snacks are "free" that day. So even if you think you'll have to spend more cash to satisfy the picky eaters( I would say just use snack credits to buy those extras) you wouldn't be in a "hole". Also each character meal is all you care to eat or buffet so the picky eaters can actually "pick" what they like.
We had a picky 5yo with us AND we are a vegetarian family. We loved being on the plan and had plenty to eat. I purposely booked buffets to be sure we could select enough (food and variety) to get our fill and feel like we had a nice meal/got our money's worth. We were able to do this everywhere we went: Chef Mickey's bfast, Boma dinner and Hollywood & Vine dinner. We had two "made to order" meals: Coral Reef lunch and Narcoossee's. We loved them both and had excellent meals. The atmosphere at Coral Reef might really appeal to your young ones. It's underwater and has a full wall aquarium: fish, turtles, Mickey's can be found swimming around in there! We thought Coral Reef was expensive, but on the plan "its all the same" so no worries.
The key for me with the Dining Plan for you are feeding your kids for $10 at Disney. I think it'll be really hard to do that OOP.
You do have book an onsite stay and buy at least a 1-day ticket for everyone in your room, so if you aren't going to do that you can't choose the Dining Plan (ie. you buy your tickets elsewhere or already have them).
Finally, I think you will find more variety and flexibility with the counter service choices at the resorts. Especially at the Moderate and Value resorts the CS restaurants are bigger and have multiple cuisines to choose from. You might do better trying to feed your picky eaters there vs the parks. That would be true whether or not you are on the Dining Plan.
On or off the plan have fun planning this vacation and enjoy your time there.