I know what you mean. It's so hard to know how much to tell them about grown-up topics.
We hadn't really said anything to the kids about the kook next door. But her behavior was so outrageous, and she was treating the kids badly, too, and they didn't understand.
I didn't tell DS8 everything (good lord, that would be way too much for a child to process), but I told him that the neighbor and Daddy had a disagreement, and that she was mad at Daddy. Her behavior toward Daddy was bad, but we understood why. Her behavior toward the kids was bad, and that was NOT OK.
I told him that I was not very happy with the neighbor, that I thought she was more emotional upset than I wanted to be around, but I understand that the kids like her. I reiterated what we'd told the kids before, that it was OK for the kids to visit with her as long as one of us was there with them.
DS8 said he understood, and that he didn't like that she was mad at his Daddy.