Try to think for yourself what each preposition means, Ms Tan. Though it's sometimes difficult to decide which preposition to use, there is a meaning for each one that has allowed Chai [and other native speakers, to decide which to use.
I think if the speaker were watching them playing there, 'in' should be used as he and they were in the playground. Hence, in the above sentence I wrote, I think it should be 'in' although Chai advises the use of 'at'. This is with due respect to Chai. I stand corrected, of course.