*"I can pretty safely state however that the dog did not 'try to bite' - dogs move far faster than us, if the dog intended to land a bite, the dog would have landed a bite unless there is extra information such as the dog is blind - dogs don't miss.
The significance of that is.. this dog IS still communicating their discomfort without actually biting.
Likely an air snap (often interpreted as 'tried to bite but I pulled them away in time')."*
^^This. But, @UserICantThinkOfAUsername - I don't think YABU at all... and I (and subsequently my own children) have spent my whole life around dogs, literally from the day my parents brought me home from the hospital where I was born. Whilst my own parents left me alone with their own dogs (family stories about how the male would give me a wide berth until I fell asleep, when he'd curl around me on the floor... and how the female treated me very much as her own puppy to the point of "picking [me] up my the back of my romper and dragging [me] to her bed under the stairs where [my parents] couldn't safely reach in to retreive [me] without her growling at [them]" - honestly, it's a miracle I wasn't ever hurt in any way by them!), by the time I became a parent I knew enough to understand that a dog... is an animal. And, as such, they're unpredictable - especially around small, fast moving, high pitched adversaries! Consequently, neither of my children have been left unsupervised by the family dogs until they were older (they're 26 and 17 now).
There could be a multitude of reasons as to why your PIL's dog snapped at your crawling baby. It might have been feeling unwell, be getting too old to deal with infants and toddlers, have been fed up of the day's chaos (to it) of a family gathering. However, the baby shouldn't have been allowed close enough to the dog in the first place, in my opinion. As the quoted poster above says: a dog doesn't miss. And yes; they "air snap" as a corrective method for those they know "belong" to their family/pack and who they consider below them. In its own home, to your PILs dog, your children are below it. That's how their brains are wired, I'm afraid. If it had a headache from high pitched (normal) toddler/baby shrieks or cries, then it might have snapped as a way of saying "enough!" or "leave me alone for 5 minutes!". I'm afraid that in this instance, I'd blame your distracted PIL and DH more than I would the fed up dog.
My youngest is 17. My parents current dog is 6. Their dog, when my son was in the first teenage flows of testosterone (and perceived as competition or a threat to my parents unneutered male dog in his own home during bimonthly visits) would frequently air snap at him whenever he encroached too much. My son would lounge on the dog's bed, for example, despite knowing (and being told) not to because the dog didn't like it. Not once did my parents dog actually land a bite. It was simply his way of communicating that he'd had enough of my son trying to dominate his space in the family home. Actually he air snapped at me once, too, when my dog was an annoying puppy - a centimatre, perhaps, from the tip of my nose. But I know full well that if he intended to bite - I wouldn't have a nose as I type right now. He simply wanted me to remove the small yapping puppy from his vicinity so that he could have a nap (he was around a year old at this point, I think, and over tired from a long walk - fair enough; he wanted to sleep, my then-pup was annoying him, he knew that I was in charge of the annoying creature... I was warned!). Said annoying pup is a rescue, quite neurotic and very possessive/protective of me - I've already had to say to my TTC 26 year old that if babies come along, that the process of introducing them to my dog is going to be a long and tricky one, but that they will never (by my own ruling) be left unsupervised with her... for my dog's welfare, as well as that of these as-yet-hypothetical little ones
If I were you, OP... I would stand my ground over this. The dog's owners cannot afford to be distracted when their dog is around ANY child or baby. Regardless of whether the dog has always been protective of the baby, or not. Right now, it is telling everyone that, for whatever reason, it's had enough. But I would suggest to them that they have the dog health checked if this behaviour is out of the blue (although I suspect it's not the first air snap...) and the dog is not behaving "normally" in their opinion (although it's an animal - there isn't really a "normal" for them). Either the dog is shut away when your family visit, or you don't visit - because when this dog's warnings go unheeded for long enough, it will bite. And they are, I suspect, like you in being unable to "read" their dog's body language/understand its warning signs around fast moving, high pitched little ones. And please don't heed their undoubted retorts of how gentle the dog "usually" is, or anything like it... as a PP has said, this won't be the first time that their dog has cried out for control over its own space, or felt unwell, or simply been frustrated and had enough of the chaos which goes hand-in-hand with toddlers and babies... yet its owners haven't done anything to protect it, or their grandchildren. That's on them. Not their dog, whom they seem unable to understand its micro-aggressions (means of communication). Dangerous dogs rarely growl before they bite.