First of all, the term biological mother should not be used in this situation because this mother is still an active part of her children’s lives. She is these children’s mother; your sister-in-law’s husband is their father; your sister-in-law is their stepmother. Your sister-in-law and her husband may be the “primary caregivers,” but that does not mean that the children’s mother has, as yet, abdicated or been otherwise deprived legally of her rights as the mother.
While your sister-in-law and her husband, if interested in raising the children Catholic, should consult a priest for his advice, it is unlikely that a priest will want to receive the children into the Church when their father is not yet Catholic and their non-Catholic mother may well oppose such an action. If her husband and the children’s mother do not object, your sister-in-law is certainly free to take the children to church with her and otherwise expose them to the Catholic faith, but she cannot presume to convert minor children against the will of their parents. Only in danger of the death of a child could she baptize a child below the age of reason – usually considered to be age seven – without the consent of the child’s parents (canon 868 §2, Code of Canon Law).
Your sister-in-law should be primarily concerned to keep her husband and stepchildren in prayer and to be an example to them of the Christian life and personal holiness. Such prayer and personal example may well be a channel of conversion for her husband and for the children when they are of age to choose to enter the Catholic Church.