WPF Canvas, how to add children dynamically with MVVM code behind

ItemsControl is your friend:

<Grid>
    <Image Source="..."/>
    <ItemsControl ItemsSource="{Binding Points}">
        <ItemsControl.ItemsPanel>
            <ItemsPanelTemplate>
                <Canvas/>
            </ItemsPanelTemplate>
        </ItemsControl.ItemsPanel>
        <ItemsControl.ItemContainerStyle>
            <Style>
                <Setter Property="Canvas.Left" Value="{Binding X}"/>
                <Setter Property="Canvas.Top" Value="{Binding Y}"/>
            </Style>
        </ItemsControl.ItemContainerStyle>
        <ItemsControl.ItemTemplate>
            <DataTemplate>
                <Border BorderBrush="Red" BorderThickness="1" Width="{Binding Width}" Height="{Binding Height}"/>
            </DataTemplate>
        </ItemsControl.ItemTemplate>
    </ItemsControl>
</Grid>

The above assumes your VM exposes a collection of points via a Points property, and that each point VM has X, Y, Width, and Height properties.

Added IsItemsHost="True" to the Canvas of Kent's solution:

<Grid>
    <Image Source="..."/>
    <ItemsControl ItemsSource="{Binding Points}">
        <ItemsControl.ItemsPanel>
            <ItemsPanelTemplate>
                <Canvas  IsItemsHost="True"/>
            </ItemsPanelTemplate>
        </ItemsControl.ItemsPanel>
        <ItemsControl.ItemContainerStyle>
            <Style>
                <Setter Property="Canvas.Left" Value="{Binding X}"/>
                <Setter Property="Canvas.Top" Value="{Binding Y}"/>
            </Style>
        </ItemsControl.ItemContainerStyle>
        <ItemsControl.ItemTemplate>
            <DataTemplate>
                <Border BorderBrush="Red" BorderThickness="1" Width="{Binding Width}" Height="{Binding Height}"/>
            </DataTemplate>
        </ItemsControl.ItemTemplate>
    </ItemsControl>
</Grid>