My son is seven and last year there were several babies born in the family (he now has cousins all over the place!).
Naturally, he wanted to know why his favorite aunt had a huge belly and once I explained that there was a baby inside, he wanted to know how it got there and how it would get out.
I answered only the questions he asked, and re-phrased or dropped a subject altogether when he looked confused.
He knew at a fairly early age that boys and girls have different genitalia - and he knows the proper names for them. I felt that giving them cutesey names would make it seem like those areas are any more special than any other part of our bodies, and that's not a message I wanted to send. I also didn't want him to think that he should be embarassed talking about his genitalia if he was having a problem.
When he asked about babies, I was matter of fact but didn't give a lot of detail. I explained that babies are made when a grown up woman and a grown up man love each other so much that the love spills over and makes a baby. I told him that babies come out of the mommy's belly when the baby is big enough to be held. He was satisfied and didn't press about how the baby came out. When we get to that point, I'll explain to him that babies are born through the vagina. Depending on his age, that might be when we go more in depth about the male and female reproductive systems. Sex, however, is a topic I'm hoping not to have to discuss until middle school!