Based upon the slight information provided ... your sister-in-law is nuts and a control freak. This is all family ... and you're concerned about legal ramifications? What you did 95% of the US population would consider a very nice, considerate and actually a wonderful deed. (There must be a few who have a religious or cultural thing about being photographed ... I'm assuming you and family do not.)
Why does she feel you need to have her permission for the photos? As you are on this forum, I suspect you also took photos with your own equipment ... does she have a problem with that? What's the dif?
Again, she is a control freak, you have two choices, you can bite you tongue and say "Yes ma'am, I am sorry ma'am." ... in order to preserve peace in the family by walking around the elephant in the living room ... or excerise the fact that humans have backbones and tell her that she is completely wrong and that she will not control your actions as long as your actions are legal, ethical and not harmful in any manner. (And then stand back and watch the fireworks. In which case she will use your nephew as a weapon against you and say that you cannot see him again or at the least never keep him overnight.)
I doubt that this control thing happened overnight ... so the family has been enabling her to act this way by saying "... that's Susan ..." and walking around the said elephant. So, remember by exposing the elephant ... by illuminating what everybody has been ignoring, will make you the bad guy.
(There are a number of other alternatives, but most of those involve the sister-in-law coming to the table in an open and receptive fashion ... which I don't think is gonna happen.)
Hopefully, your wife and her the mother can intervene and try to bring the control freak nearer the top of the bell curve of social behavior. Don't let you sister-in-law's problem(s) become your problem or destroy your good feeling for performing a good deed. If you do capitulate in order to preserve "peace", use that card for more photo equipment.
Good Luck,
Gary
PS- (Hopefully you're not a felon or equal that she would suspect you could/would do something illegal or unethical with the photos ... but then again if you were or if she had any suspicions about your character, then she should not have left them with you in the first place).
G
PPS- If you ever want to have photos taken of my kids with your kids (on your nickel) ... let me know.
G
PPPS- You sister-in-law is a loon.
G