Seafair is not just one weekend. The main weekend is not JULY 4th, but there are Seafair events that weekend and the 4th is a HUGE weekend in Seattle regardless. The lakes/water areas are overrun with families and traffic.
And yes. it is a port city for the cruise ships utilizing the Port of Seattle and the Seatac international airport. The cruise ship terminal is there and there are a lot of tourists staying there before/after cruises.
Any inexpensive hotels near the airport are about an hour+ away from the Stadium on a really good traffic day. Its not really convenient to visitors fromout of town. There are some options, but not a lot, probably. Any local knows it is an insane time to visit Seattle unless you have lots of money, lots of patience and lots of energy.
Good thing-if they have to bethere anyway, they will get great fireworks and it will be a fun weekend, even if you are stuck in a beating hot stadium all day. The bars and clubs will be crazy, lots of people looking to have fun, great restaurants (maybe a bite of seattle thing somewhere).
Visitors-go to Ivars and your kids will have fun the "The Ye Olde Curiosity Shoppe" right on the Waterfront near the ferries and Ivars. Go on a ferry ride, too. It's gorgeous.