I would definitely supervise the dog around your children, especially if they are younger.
The situation is difficult for outsiders to assess without knowing the dog and environment, and seeing the incident. Biting and baring teeth are never acceptable, but it sounds like there is a whole lot of negative energy fueling the situation.
Your puppy did something naughty taking the tissue. Teach her "drop it" or a similar command for situations like this. If you show anger and frustration, and fly to chase her, your energy will fuel the dog's negative action.
Many Yorkies love to be chased for the naughty prize that they have snatched. Max will growl protectively over a chew when I want to get it away from him, but he has great bite inhibition and would never bite me.
I strongly believe in positive reinforcement training, especially for Yorkies who can be willful and test your patience. The only negative I employ is withdrawing attention, leaving the room, which can be very effective in stopping bad behavior.
Re-directing attention is also very effective. When my boys get out of hand wrestling, I tell them to settle down and then ask if they want to perform tricks for treats (a kibble for each trick).
Your girl is still very much a puppy. She will test your patience. Maintain an even keel, foster her trust, and train her to drop things and exchange things for a treat reward. This is for her safety and your family's.
Here is an article on bite inhibition:
http://www.yorkietalk.com/forums/gen...nhibition.html