One Shabbos during the Chazan's repetition of the Mussaf Shemoneh Esrei, I noticed a guest who is a Kohen (who seemed to be of Sefaradic stock) wrapping his sons in his tallis, with his hands on their heads, apparently giving them a blessing. I assume it has something to do with Bircas Kohanim. (This was in Chutz La'aretz, by the way.) Does anyone have any information about this custom?
This custom is shared by almost Sepharadic people (North Africa + Middle East) and it's not specific to Kohen. Fathers (or Rav or Zaken) bless their son(s) (and/or other people) during Birkat Kohanim.