Hacke, Spitze, Hacke, Spitze, eins, zwei, drei is an old childrens play-verse/song that exists in plenty of varieties, sometimes also "Hacke, Spitze, hoch das Bein!" or "Ein Hut, ein Stock ein Regenschirm...vorwärts, rückwärts, seitwärts, stehn."
Core idea is that the text gives the instructions, not unlike in linedancing.
is the heel of the foot, so it's basically tip the heel on the ground, toes up.
is the tip, so tip with your toes.
(The numbers are just counting plain steps.)
If the children you observed were not "dancing", they were probably playing soccer, where this sequence is sometimes shouted for encouragement, here referring to different ways of playing the ball.