MASSIVE SPOILERS FOR FAIRY TAIL
Anyways, not that I have my contractually mandatory violent reaction ought of the way....
My assumption is they aren't dead, unless he's going through a creator breakdown and he killed them for a take that against something.
If they are dead.....
Well, that doesn't make sense. It just is confusing to kill them now. If some of them got killed off, that would be okay, but as of now killing off all of them was a bad idea.
Still, a rather crushing way to end a arc....
Maybe he got frustrated with were the series is going? Mad at the anime for cutting out the blood? Mad at the fans? Maybe there was executive meddling and he decided to give them a big "[redacted] YOU!!!"? Maybe it was trying to one up One Piece's breaking the unspoken law of killing off character except in flash backs?
That's all the reason's I could come up with in favor of them being deads for real.
My theory right now is that the random character in the background was a Fairy and/or the incarnation of the tree and protected/spirited away/reincarnated them as kids/sacrificed herself for them.
Last theory is that boy is either the reincarnation of Natsu or a boy that Natsu inspired.
That's it for now.