L.L.
It was common when I was a child NOT to have a small child address adults by first names.
Distant older relatives, no matter the relation were "Aunt" and Uncle" as were close friends of the family.
The more aged ones were "Grampa so and so" And Grandma so and so.
To me it is entirely appropriate for your child to so address these older inlaws.
My three year old grandson refers to my best friend as "Grammie Jan" and to another as Aunt Betsey, same as my children did. Except Jan was Aunt Jan to mine of course.
If there was a neighbor , not exactly a close friend we called them Miss Jane, or Miss whoever. Unless they preferred Miss Anderson ect.
Aquaintances were Mr. and Mrs. whoever.
My children's friends who came to visit often called me Mother Lowell ( still do) and when I got older the youngsters of these children call me Grandmother Lowell.
The thing was, we were not allowed to call adults by first names and I see no harm, nor any reason why children should not be raised with that respect for their elders.
It establishes a base for respect for authority, yes? Not enough of that today I think. At least, I do not see very much of it going around.
Your son is three years old. He knows who his blood grandparents are. Or if he doesnt he will soon figure it out , even ask you about it and you can explain it is a respectful way to address older people in his life.
This takes nothing away from his true grandparents.
Best wishes and God bless
Grandmother Lowell