I love Valencia. The mix of the Old Town & the beach area. I've lived up in the town and down by the beach. It's easy enough to get between the two and you can walk it, but I'd base yourself at whichever end you think you'll spend most of your time. Don't go for 'the middle' unless you can get a fabulous apartment with your own pool.
The beach is great, for a city beach. It is clean & it has a great 'boardwalk' so the kids can cycle or scooter along it (it's cheap to hire adult bikes for a week, not sure about kids) but if it was me I'd pay the extra & take their scooters (if they have them, if not buy some there and pay to bring them back) lots of cafés etc. it's like every beach in August, busy, but not as bad as English beaches on a busy day.
The weather was incredible. It's hotter than here, but it's a nice heat & generally dependable blue skies.
It's a brilliant city for festivals & fireworks, there's always something going on. (Check August though, I don't remember it being quiet, but worth checking if it's important to you).
The 'Aquarium' is brilliant, the biggest in Europe.
There are loads of play parks etc and a long, interesting park that used to be a river.
Barcelona is great too, the beach is a city beach too, but it's fine. There's loads to do, transport is fairly easy etc. you can also do a day trip to Montserrat.
Personally I'd go to Valencia, but that's probably because I know it well so it would be easier, it's also smaller so less 'hassle' getting places etc with 3 kids. I also think the beach is better/easier.
On the other hand, my friend has just booked an all inclusive holiday for a family of 4, for £2.5k at a resort in Spain, brilliant kids club etc. nice pools yadda yadda. (They went last year too). Can't remember where exactly. It just depends what you're looking for in a holiday.
Have fun wherever you decide to go!