Relative clause
 

which one is correct and why? and if both are correct what's the difference?

My sister who lives in Australia has 3 children.
My sister who has 3 children lives in Australia.

There's no difference. Both sentences are correct (except that '3' should be spelled out).

Removing the relative pronoun and substituting a subject pronoun, we can make two sentences for each one you wrote above, like so:
My sister has three children. She lives in Australia.
My sister lives in Australia. She has three children.

Since the two sentences in the first line provide exactly the same information as the two sentences in the second line, the relative clauses can be switched around with no change in meaning.