This is an extremely unethical situation. Firstly, it violates the trust and loyalty in a marriage. Your boss's wife has broken her commitment to her husband. And for you, it can cause a huge mess in your workplace relationships. You should probably distance yourself as much as possible to avoid the potential fallout.
You should probably keep it to yourself for starters. Telling anyone could cause a lot of drama. Then, try to avoid any further inappropriate contact with her.
Sharing such a story is highly inappropriate. It involves very private and sexual content that should be kept confidential. Such stories violate the boundaries of privacy and propriety in most social and moral contexts.
This kind of story is often baseless and unethical. In educational institutions, there are strict ethical and professional boundaries. Teachers are expected to maintain a proper and respectful relationship with students, regardless of the student's gender identity. So, in most cases, such a story is likely to be false.
This is an extremely awkward and inappropriate situation. It goes against the norms of a healthy family relationship. You need to communicate your discomfort clearly. You can say 'Mom, this is not a topic that is suitable for discussion between us. Our conversations should be positive and appropriate. I hope this never comes up again.' If possible, try to distance yourself from such inappropriate conversations in the future and focus on building a more appropriate and healthy relationship.
This is not okay at all. In a healthy family environment, parents should focus on teaching their children positive values, good behavior, and general knowledge suitable for their age. Sex stories are not part of the appropriate knowledge transfer from a mother to a child. It can make the child feel awkward, and it may also cross the line of moral and ethical norms in family relationships.