The arcdade in Dawlish is great for kids. It is small but has all the classic games. Its great as it is very cheap so you can send the kids off with 50 pence and they are happy for ages.
A trip to Corfe is a must, particularly for a visit to the Castle. Corfe itself has a number of small shope that sell tourist bits and bobs. The sweet shop is great. A visit to the castle is good for kids and adults of all ages. It's not a long walk to the top and the view is great. Once back at the bottom a pastry from bakery is a must.
The beach is great for surfing. It doesn't get too busy and the waves are good due to the shape of the beach. Its worth checking out the near by surf shops for second hand wet suits instead of hiring at a higher cost.