Agree with diddl, they sound worse and worse the more you say about them.
Bullying, entitled, manipulative. And just - well, no manners, no real idea how NORMAL people behave!
I've read many threads on this issue and it's so common - the essence of the problem is really that the MIL has had many years of being the matriarch - the head female figure in the family. The her son marries, and she KNOWS she doesn't come 'first' among females anymore, and it's a hard adjustment. Then he has children. And all of a sudden, she is PUBLICLY 'dethroned', as there is another woman (possibly until quite recently a complete stranger) who is the person in the family saying 'Time for a nap' and 'No we won't be eating that' etc.
There are two main types - the sensible, well-adjusted women who have a life of their own and welcome the turn of the new generation and see the positives. Then there are the weaker characters whose adult children are 'their life', who live demanding, manipulative lives bolstered up on a false platform of being pandered to by the rest of the family.
What your DH really needs to see is that he cannot HAVE the option he's trying to take at the moment. Your comment on his dealing with the situation by laughing at MIL really got me thinking. It's quite a clever 'solution' he's had there, and I bet it's served him well. Basically, he's still scared of Mummy's reaction to being anything but first with her little prince, but can't allow himself to see that this is actually the case - he's the big grown-up now, right? By affecting to laugh at her, to not take her seriously, he gets to keep his dignity and can bury the fact that what he's ACTUALLY doing is being submissive to her, letting her do/say anything. He laughs publicly, patronises her - but what's actually happening? - he is failing to challenge her. It is a smokescreen for his fear of her. She trained him well, and he is a clever enough man to have created his own way of not actually looking like a mummy's boy whilst letting it continue.
But now it's not about just him. He's now part of a separate family, not a single agent. You are, quite rightly, horrified at MIL's actions and your natural instinct is to defend your position and to demand an apology. And you are left looking on in horror and bewliderment at your husband's now UTTERLY inappropriate response.
I hope your husband does read this. Marriages have foundered on this power struggle being played out. He cannot maintain this submissive position to the generation above him and truly be a husband, father and the head of his own family. He just can't. Ultimately, it would destroy your marriage by the simple fact that your respect for him would erode away. Keeping MIL in her false position shouldn't be worth threatening his primary relationship. This should go for FIL too. His attack on you sounds absolutely vile. Quite frankly, any man who doesn't respond to an attack like that on his wife by setting his father straight in the strongest possible terms isn't worth having as a husband. I suggest that you remind your DH of this event, and others, when you see him and make it quite clear that you have had enough. You have absorbed, forgiven, given way MANY TIMES basically for the sake of family relations and keeping them sweet. They have now overstepped the mark. Now the balance has well and truly swung the other way. YOU and your children are your DHs nuclear family and his loyalty should be to YOUR wellbeing, not PILs'. Is he up to making that choice or does he wish to stay on the apron strings? Yes, it is HIS CHOICE - not one to be passed as a cowardly buck to you 'well I'll do it to appease you'. No. His choice. Big man's choice. Grown-up choice. Forced by the actions of PIL, not you. Make that crystal clear!