We went through this quite recently when we lost my Gran - dcs wanted to know what had happened to her.
Personally I beleive she went to heaven (in line with her and my CHristian beleifs) and so that is what I told my children.
Dd1 (7) went through it a few times - no you cant get to heaven, even in a spaceship, no, you dont go there when you are dreaming, no, you cant just go to visit, no (cos thats what we believe) you cant ome back from heaven, not ever, but one day we will go there too and we will see her again. Won't she be lonely? No, because Jesus is there and all the friends and family she had who have already died and gobe there already.
Ds(5) didnt get the permanence, dd2 (3) didnt really understand.
i think it helps if you know what you are going to say ahead of time, so that you dont get too tied up in knots. We got the hard questions from d1, as far as we are concerned 'who gets to go to heaven?', 'what happens to you if you dont go to heaven?' etc which we had to work out ahead of time, and we were glad we did. BTW we didnt scare her with visions of hell, we're not that way inclined!
Our kids were happy enough with 'no-one really knows what happens cos noone has ever come back, but because we love Jesus we think ....'
Cant think of any books - we used our kiddie bible for descriptions of heaven.
Hope your grandparent s live for a while yet - but I think all kids go through a morbid death phase!