My husband and I have upgraded our phones (iPhone 4s and iPhone 5) to the iPhone 5s.  We have given 2 of our kids the "old" phones and want to set them up as an iPod touch.  Both kids have email and need to be able to text (iMessage).

My husband and I have upgraded our phones (iPhone 4s and iPhone 5) to the iPhone 5s.  We have given 2 of our kids the "old" phones and want to set them up as an iPod touch.  Both kids have email and need to be able to text (iMessage).
I have read multiple posts on how to do this and I am still confused.
Apple ID/ICoud:
We want to be able to monitor what they do, but do not want their devices linked to our emails/contacts/etc...  Each kid has their own email account.  So, from what I have read the best way to do this is to use our family Apple ID, but set them up with a separate iCloud account?  Is this correct?
Reset/Restore/DFU:
To start fresh we have done multiple factory resets.  I did one that someone said was a DFU and a plan ol' factory reset, etc...  Not sure the difference.  However, when I do that I get the "hello" screen and am able to start setting the phone up anew.  However, when I go to set the phone up as an iPod I end with the same result.
So, here is what I am doing (tell me what I am doing wrong):
Hello Screen
Asks me to select language and selecting:  English
Select Your Country or Region:  United States
Choose a Wi-Fi Network:  select my home wi-fi network
Enter password:  entered my home wi-fi network password
Activiate iPhone - wants me to enter Apple ID and Passwordsays that this iphone is currently linked to an Apple ID (k*******@gmail.com).  Sign in with the Apple ID that was used to set up this iPhone.
Location Services - I have enabled location services
Set Up iPhone
Set Up as New iPhone
Apple ID
Options are to sign in with your Apple ID or Create a Free Apple ID
Or I could "skip this step"
I signed in with my Apple ID
Terms and Conditions - Agree
iCloud - I can select either to use iCloud or Don't Use iCloud - I selected use iCloud
Find My iPhone - I can select either to use find my iPhone or to not - I selected use find my iphone
Once I do this it says iMessage and FaceTime and shows the following:
my email
my other child's cell phone number
and my husband's work phone number
This is where things do not make sense.  I only want the phone set up with the current child's email address.  Where did I go wrong?

There are a number of Apple services: iMessage, FaceTime, iCloud, Game center, Find My iPad, etc.
Now, to share apps, music and books you need to have the same Apple ID:
iPad's Settings > iTunes & App Stores > Apple ID > Your purchasing Apple ID.
For the other service, your wife should have her own Apple ID.
All she needs is a valid e-mail address, apply Apple ID below:
https://appleid.apple.com
Here's a limk with useful tips: Note: It's also valid in IOS 6
iOS 5 & iCloud Tips: Sharing an Apple ID With Your Family

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