Limit the use of my Apple ID on my kid's iPod Touch
Since you do not want your children to have access to your Address Book (that syncs using iCloud), you should use a new Apple ID. This means you have to turn off and change the current iCloud settings in the iPod Touch. 

Since you want to keep the apps you already installed (using your iCloud), you shouldn't  restore the iPod Touch to its original (factory) state as that will delete those apps. 

I'll recommend backing up (whether via iCloud or to your Mac) using iTunes just in case you want to use the iPod Touch again in the future.