we've gone there for the past 2 years and stayed 1 block off the beach (invited to stay w/our friends or we would not be affording that place lol) and right up the road a ways, not to far, is ocean city, nj. both are pretty family friendly beaches, i think ocean city is a dry beach still. ocean city nj we go for day trips (about 2 1/2 hrs from us) w/family.
we enjoy going to both for different reasons. ocean city beach has the boardwalk w/amusement park on one end if your kids would be into that. we always rent a surrey and ride in the am and way early we love to go to the beach before they run the combers or whatever they call them and look for shells and whatever other goodies we find.
cape may i personally find more relaxing, but that could be because we go more towards the end of season. but where we stay is right near the one lighthouse and the kids always love to climb to the top and experience the rush of wind at the top plus it has an awesome view. there is always tons of beach play, the early shell finding, last year someone told us to go down the beach and visit diamond beach and the kids loved looking at all the tiny different colored stones that are there. they each collected some and put them in baby food jars and still have them. also there is the bike riding you can do, a bird sanctuary, the zoo as someone else mentioned, you could take a ferry ride if you liked and i am sure there are tons more things you can find to do as well.
but both are relatively close and depending on how long you are planning on staying you could do different things and experience both

hope that helps some!