Overwhelmed with passes and area to stay

If I was going to Switzerland, I wouldn't be staying in Zurich. It is not in the mountains, and it is a little too quiet for me.

Last question first (coz its the simplest). If you buy a Half Price Card (CHF 120 per person for 1 month), then when you buy any tickets for Swiss public transport (trains, buses, trams including urban transport), you pay ½ fare (same as a child's fare). You also get a card so any under-16's travelling with you are free.

If you buy a Swiss Pass, all travel is free (excluding mountain railways), you never need to buy a ticket. It is also free for under-16's travelling with you.

Golden Pass, is train routes (pass as in mountain pass), not a ticketing option!

You say "3 ngts layover in Zurich". Does that mean you are staying at the airport, in Zürich city, or just have 3 nights free between flights?
What I would recommend is not staying in Zürich, but get a train direct from Zürich airport (station name: "Zürich Flughafen") to Luzern. This only lakes 70 minutes. And find a hotel in Luzern for your 3 nights.

This is the official Luzern tourist website, where you can find hotels: http://www.luzern.com/en/index.cfm
This is a 360° panorama of Luzern, so you can see what it is like: http://tour.luzern.com/360/en/
This is the official site for the boats running on the lake: http://www.lakelucerne.ch/en/

As for ticketing, I would just buy normal tickets from Zürich Flughafen to Luzern and back. If you have spare time on your arrival day you can look around Luzern old town. Then buy a local pass for the 2 full days you are in Luzern.
It's called a "Tell Pass", cost CHF 180 for 2 days, children CHF 30. This gives you unlimited travel on the lake boats, the rail and bus lines around the lake, and you can go up the three local mountains (PIlatus, Rigi and Titlis).
Details here: http://www.tellpass.ch/en/summer/

Chris,
We arrive at 7:50am on a Wednesday and our departure is at 9:50am on a Saturday (3 ngts free between flights)..I was thinking of staying at a hotel near the airport on our last night.. I’m open to the idea of staying at one place for 3 ngts so we only have to unpack once, but i’m wary of the luggages and that there’s no room for error to make it to ZRH 2 1/2 hrs before our int’l flight.

The Golden pass.., is that some kind of a HoHo train version?
Any other pass that is worth noting for just a 3 ngts visit?
So the Swiss Pass covers the round trip Luzern-Lauterbrunnen?

Arriving at Zürich airport 7:50am is good, you can use the rest of that day to explore Luzern old town, then do excursions the next two days.

You don't have to stay at Zürich airport on your last night. There are some early trains from Luzern to the airport which would get you there in time:

Luzern dep 04:55, Zürich Flughafen arr 06:13
Luzern dep 05:28, Zürich Flughafen arr 06:42
Luzern dep 06:10, Zürich Flughafen arr 07:16
Luzern dep 06:35, Zürich Flughafen arr 07:42
Luzern dep 07:10, Zürich Flughafen arr 08:13
Luzern dep 07:35, Zürich Flughafen arr 08:42

It is up to you, whichever makes you comfortable.

The "Golden Pass" is a scenic train route, Luzern - Interlaken - Montreux.

"Any other pass that is worth noting for just a 3 ngts visit?" - don't think so. You only have 2 trips, airport to Luzern and back. This costs CHF 30 each way (per person), so no point in getting a pass.
"So the Swiss Pass covers the round trip Luzern-Lauterbrunnen?" - yes it would. It covers all public transport in Switzerland (rail, boat, bus, city transport). But I don't think you will have time to go that far. With only 3 nights (2½ days) I suggest:
Arrival day (½ day) Luzern town
Day 2 - boat on the lake
Day 3 - up a local mountain (Pilatius, Rigi, Titlis)
Day 4 - up early to catch your flight from Zürich.

You could stay in Lauterbrunen or Wengen for your 3 nights. But that is 2h45 from Zürich airport (instead of 70 minutes), and you would definitely need to stay at Zürich airport the night before your departure. Lauterbrunen or Wengen are good locations if you want to hike. Luzern is more relaxed. A nice old town (pedestrianised, town walls), plus boat trips and (as well as Lauterbrunen or Wengen) cable cars to mountain summits.

The local mountains you mentioned has never been on my radar, so i appreciate you bringing it up. Your itinerary sounds good to me, but it opened another door of questions.
1. The mountains, do they have villages? Any places to eat in case the kids get hungry?
2. If i dedicate day 2 to a boat trip, what’s the itinerary like? Are there any docks to visit?
3. Should i reserve my tickets for local trains in advance for better prices?
4. Just found out that there’s a Family Pass( kids are free), i dug deeper, end up in a page where there’s a set price for adults and kids, i thought they were free?

Will these Luzern mountains make up if we skip Lauterbrunnen?

1) The mountains, do they have villages? Any places to eat in case the kids get hungry?

There is always something at the top where you can sit or eat. There is not usually a village half way up you can stop at. Pilatus is the nearest mountain to Luzern, it even has a hotel at the top. Brochure here: https://www.pilatus.ch/fileadmin/files/informieren/broschueren/Hotel_Pilatus-Kulm_Broschuere_de.pdf

2) If i dedicate day 2 to a boat trip, what’s the itinerary like? Are there any docks to visit?

If you look at the 360° Panorama I posted last time: http://tour.luzern.com/360/en/
The old town is to the right of the bridge, the station is to the left of the bridge and the boat landing is in front of the station (no docks).
Pilatus is the white mountain in a cloud above the station.
The boats travel all over the lake, stopping at landing stages in each lakeside town or village. You can do 1-2 hour trips, or a longer trip to the far end of the lake (Flüelen) and get a train back. The timetables are on the site I posted. All this is covered by the regional Tell Pass.

3) Should i reserve my tickets for local trains in advance for better prices?

No, trains in Switzerland do not need reserving, and rarely have discounts for advance purchase. And if you have a pass, no tickets are needed.

4) Just found out that there’s a Family Pass( kids are free), i dug deeper, end up in a page where there’s a set price for adults and kids, i thought they were free?

Not sure which pass you mean.

Will these Luzern mountains make up if we skip Lauterbrunnen?

I think so. Titlis is the highest, and has a small permanent icecap. So the kids get to go inside and play on a real glacier. See here: https://www.titlis.ch/en/adventure?c=60326,60692

“Not sure which pass you mean”.

This one...

https://m.myswitzerland.com/en-ch/transport-travel/tickets-for-guests-from-abroad/public-transport-passes/swiss-family-card.html

Looks like there’s a lot more to be done with all these links and information you have shared.
I’ll be back when i’m done going thru all of those..
Thanks for your help and time, i appreciate it.
I’ll be back for fine tuning.

Swiss Family Card
Children under age 16 travel nationwide on public transport free of charge when accompanied by at least one parent holding a Swiss Travel System pass or ticket.

This is the EXTRA card you get so your children (under 16) travel free. Adults have to have paid their fare for this card to be valid (Swiss Pass, Swiss half price card + ½ price ticket, or full fare ticket).
You don't have to pay for this pass, it is free.

I don't think it is valid with the local "Tell Pass" I mentioned before. Here it says children pay CHF 30 for a Tell Pass: http://www.tellpass.ch/en/winter/info_tips/kids_offers/
It would give your children free trips Zürich airport to Luzern and back, if you have normal tickets.

I’ve done a bit of a research and some Math along the way, looks like your suggested itinerary is the most sensible plan we can have.

However, when it comes to the Passes:

Tell Pass: 180 chf * 2 adults = 360 chf
30 chf * 3 kids = 90 chf
(30*5)2 = 300 chf Zrh-Luzern return
Total = 750 chf

Swiss Pass: 225 chf * 2 adults = 450 chf
All kids are free with the Family Card
add-on, including the rd trip Zrh-Lzrn

There’s a possibility that we can take the boat ride out of Day 2 and instead hop on a scenic train to somewhere.. Pls. free to highlight anything that i missed. Thanks again Chris

The Tell Pass covers all 3 of the mountains (Rigi, Pilatus, Titlis)
The Swiss Pass only covers Rigi, gives a reduction for Pilatus and no reduction for Titlis. You can see that on the Swiss Pass map: https://www.sbb.ch/content/dam/sbb/de/pdf/geschaeftsreisen/reisen/Uebersichtskarte_Synoptic_Map_2018_einseitig.pdf
Both cover lake boats (and trains and buses round the lake).

Other than that your arithmetic is OK.

Doing the math when it comes to Swiss travel always makes sense. Last year, I bought the Swiss Pass and obtained the accompanying Family Pass for our family of 3 (1 adult and 2 teens aged 15 and under). As Chris has pointed out, children who have already turned 16 are not covered on the Family Pass.

We LOVED the convenience of the pass. We hopped on and off buses, trains, and some funiculars without an issue. We also were able to obtain entrance to many museums and historic sites with the pass. For our family, the math definitely made sense.

Enjoy your trip. Switzerland is truly breathtaking!