As the college education is very costly, I want to send USD 25,000 to him as a gift. What is the procedure and what Indian and American tax laws are involved ?
This transaction will be treated as gift. As per Indian law you can transfer unlimited amount to your close relative [son-in-law/grandchildren/daughter/etc]. In US the gift tax is on donor, as you are no US citizen you are not bound by this. As your son-in-law/grandchildren are US citizens, there is no tax to them.
Your son-in-law may still need to declare this in Form 3250 or such relevant returns.
Under the Liberalized remittance scheme [Refer Q3], you can transfer upto USD 250,000 per year. There maybe some forms that you need to fill. Ask your Bank. If the amount is more than USD 25,000 a CA certificate along with 15CA, 15CB need to be filled. Essentially the CA certifies that taxes on the funds being transferred have already been paid to Govt of India.
Can I send money to him directly or to his father who is submitting tax returns in USA?
This does not make any difference in India. Someone else may answer this question if it makes a difference in US.