First of all, I'm really sorry. I know it's hard. My dad died in March of Oral Cancer at 63...they told us at the beginning of February that he could die at any time (complete surprise, he had just finished surgery and radiation and they said they thought they got it all...he was at no risk for that cancer, so it was just difficult throughout). He lived 6 weeks, and we were there every day, pretty much all day...he died at home, during the night, so we were not there. I had DD in May, and then we moved in with my mom to help her (my grandmother lives with her), so we talked about all the changes that were going to happen in his life while my dad was dying, just so he knew the things that would happen.
DS was almost 2.5, and not very verbal, so I'm sure that's very different. We are also not religious. How is your dad? Can he talk and interact with you?(my dad had a trach and could talk kind of at the beginning but as the weeks went on he lost the ability, and he lost the ability to lift his head and look at you as well) I would spend a lot of time with him, and he can tell your DS how much he loves him, etc. DS helped with my dad's care, and just played around, next to him and such, and I think it was wonderful for my dad to have him there. He was playing with him as long as he was physically able, and I think that was great. He did see him get sicker and sicker, so maybe that helped. I would focus on the time they have left together, and make it as memorable as possible, but discuss with your son that your father is sick and won't be with you much longer. I am glad that DS was able to spend that time with my dad...it was such a hard time for all of us but I think it was important for him to go through it with us.
To be honest, I'm not sure what DS thinks to this day. He says Papa is in the "stars" which, I guess, is as far away as he can imagine. He came up with that on his own. He did say he wants Santa to bring him a telescope so he can see Papa, so apparently he takes it very literally. Since we're not religious, I just told him that when people get very old, eventually their bodies stop working so they can't be with us anymore, or something like that. My dad was relatively young, but he doesn't get that since he's so little. We took him to the wake (closed casket, because I didn't want to deal with it being open, I thought that would be too hard for him), the funeral, and the burial. We told him that Papa died and all these people were there to remember him and talk about how much they love him, and how much he loves them. I did emphasize that he couldn't come back, since DS still seems to kind of think he's on a vacation to the stars. Personally, I choose to talk about how much he misses DS and how much he loves him, even though we don't believe in an afterlife. I know that it's comforting to DS, and I'm okay with that kind of a social function of it, because he's just too little to discuss it in depth.
After my dad died, DS had some issues, so he was definitely coping. He regressed in his potty skills, he insisted on wearing a baseball cap 24/7 and didn't like taking off his coat inside. There were days he slept in his coat and hat. Many, many days. He doesn't cope with change well, and this was no different.
It's hard to lose your father, and it's even harder to see your babies lose their grandparent. They do cope in their own ways, so I would just listen to what he says and answer him as honestly as you can. My thoughts are with you during this difficult time.