What does the time command do on zsh Mac terminal? And what is the output of "children"?

The time you use in your question is not a command, but rather a reserved word in zsh. It can be used in two different ways and its output can be customized through the $TIMEFMT parameter. There is also an external command time on macOS, which produces slightly different output.

Just time

If you use time by itself (as shown in your question), then your current shell will report time statistics for itself and its children:

• shell represents the shell in which you executed your time statement. children is a summary of all running processes started from (and still owned by) that shell.
• user and system show the amount of CPU seconds the above processes spent in user mode and kernel mode, respectively. See https://blog.codinghorror.com/understanding-user-and-kernel-mode/ for more info.
• cpu shows the combined values of user and system, as a percentage of total CPU time. total shows how long ago the shell or its oldest child process was started (here in minutes:seconds.fraction).

time <command>

More often, time is added before a command. If you use it that way, then the shell will report time statistics for that command only:

% time sleep 0
sleep 0  0.00s user 0.00s system 43% cpu 0.007 total
% 

total here is the number of seconds it took for the command to complete.

Customizing time output

time's output can be customized by setting the $TIMEFMT parameter. For example, we can add memory usage:

% TIMEFMT+='  max RSS %M'
% time        
shell  0.22s user 0.10s system 53% cpu 0.601 total  max RSS 6120
children  0.11s user 0.16s system 45% cpu 0.601 total  max RSS 3056
% time sleep 0
sleep 0  0.00s user 0.00s system 61% cpu 0.003 total  max RSS 580
% 

External Command time

The external command time can be used as follows:

% command time
% command time sleep 0 
        0.00 real         0.00 user         0.00 sys
% command time -p sleep 0 
real         0.00
user         0.00
sys          0.00
% command time -l sleep 0  # Add memory usage
        0.00 real         0.00 user         0.00 sys
              585728  maximum resident set size
                   0  average shared memory size
                   0  average unshared data size
                   0  average unshared stack size
                 160  page reclaims
                   0  page faults
                   0  swaps
                   0  block input operations
                   0  block output operations
                   0  messages sent
                   0  messages received
                   0  signals received
                   0  voluntary context switches
                   1  involuntary context switches
             2198249  instructions retired
             3195521  cycles elapsed
              237568  peak memory footprint
%

real here is the same as total, above.