This is a very common situation, and also a very difficult one. From the facts you provided, it sounds as if he entered without a visa, or without inspection (EWI). Unless he had a petition filed for him before April 2001 (when the last "amnesty" program ended), he may have very limited options. Typically in this situation, people are limited to either returning to their home country to apply for a visa through consular processing, which, because he has been in the US without authorization for so long, will require him to be granted a waiver, or waiting to be put into immigration removal proceedings, where, if he has 10 years of continuous residence in the United States, good moral character, and US citizen relatives (like his wife and kids), who would experience extreme hardship if he were deported, he can qualify for a special type of relief called Cancellation of Removal. Both of these options have their problems, most importantly the risk that he will be removed from the US and not allowed to return for at least 10 years. I would strongly recommend that you talk to a local immigration attorney about what the best options for your son and law and his family are. Many families find themselves in this difficult situation, and there is no easy answer. It's important that both your son-in-law and daughter meet with the attorney, and that they take some time to discuss the advice before making a decision about how to proceed. Good luck!
It depends on how he entered the U.S. His parents will have to indicate how they brought him from Mexico; whether by plane, across the border without inspection or through a checkpoint with false docs or without docs altogether. Please retain counsel as soon as possible. If he's under 18 1/2, there are avenues for him to reenter without too much of an issue.