They have to be in Florida
From my understanding, it's rather ambiguous as to where this show takes place, and has been debated upon for awhile. The only real logical choice is Florida. It would explain the climate (it's always sunny and hot, rains frequently, and never snows), and was made fairly obvious by Malcolm's comment towards Francis upon his announcement about moving to Alaska. "It's 5,000 miles away."
Also, their vacation with Stevie and his parents in the houseboat looks to be off the coast of south or North Carolina, and it would explain Francis' military school--which is located in Alabama--being far enough away to warrant a flight, yet close enough for him to find a way home if he desperately needed one.