No one actually knows what Shadow Children are. There's a big misunderstanding between Shadow Children and Shadow People. Shadow People (or things) are commonly seen, typically either a man with a hat or a hooded man. Shadow Children are just that, children. You don't see just one child, but a gang. The story my mother told me about them is they work for Satan and come to the surface to steal children who do bad things. Having had my room torn apart by them, I can't say they don't exist although I no longer see them.
The scary part about them is that they're darker than any black color you've seen, but yet often resemble a human-like form. If you think about it, why is everyone's first fear the dark?
You can read up about Shadow People here:
The bottom link has stories of encounters (although many are difficult to believe). Here's also a good ghost/spirit link from the same site:
I forgot to add that from the story my mother told me, the way Shadow Children come to be is once human children are taken underground, Satan turns them into the Shadows and uses them.