As others said, my condolences, and sure this sort of situation doesn’t make grieving for your mother any easier.
Personally, based one what was said here, my first guess would be that his relationship is largely his way of grieving, or perhaps better said, not grieving. I don’t know how long they were married and how close they were, but I can imagine that, especially after a rather sudden death like that, the prospects of being alone and depressed were frightening. So, when a reasonable prospect came along, he latched on. I’m sure he is happy, but the other side of grieving isn’t being happy, it’s being at peace, and that definitely doesn’t seem to be the case here.
The unfortunate part here is that, even if he is done with his grief or is able to grieve at the same time–which is possible, if unlikely–his behavior is hurting the people around him. It’s selfish of him to interject her into the lives of his kids and grandkids in such a situation, aware that it’s hurting the grieving of you for your mother and your kids for their grandmother. How much more jolting can it be to see another woman, no matter how wonderful she may be, in the place where your mother/grandmother should be.
I would have a talk with him about it, but go into it a bit more than just saying you’re hurt. Try to explain to him why you feel hurt. I think you should be happy that he’s happy–I’m sure anyone who loves someone else should be–but that’s not carte blanche to fail to mind your surroundings. The grieving process for losing a spouse isn’t the same as losing a mother, nor is it the same for losing a grandmother, likely one of the first exposures to death for those kids, and he should be sensitive to those needs. That doesn’t mean he needs to stop seeing her, he shouldn’t stop for any reason other than because he wants to, but he should be wary of how he behaves with her when in your company. He also shouldn’t be sacrificing family time only a matter of months afterward; it’s a time to help get that family solidarity and grieving done.
In the end, all you can do, though, is express your feelings and concerns; only he can actually choose to abide them or not. But try not to hold your breath, if he is avoiding his grief, he’ll almost certainly keep going the same way for a while longer.
For Mary’s sake, I don’t get that she is anything but sincere, but she too should be aware of the situation and should try to help to restrain him. If there is a large difference in their wealth, punctuated by the sort of jokes you mention, it may make it difficult for her to feel like she can do much more than let him do what he wants. Sort of like’s gotten lucky too, and she’s as much in the teenager type of mentality, after years teaching and all, as he is.
If it helps, this is the sort of pattern I’ve seen before a few times. He’s had a sudden jarring change, he’s lost his wife, and it’s like a big sort of regression back to being a teenager to avoid those fears of death and age that these events bring up. I think it will pass, but only time will tell if they keep dating or not. For your and his sake, I hope it resolves sooner rather than later.