I've found in hanging out with atheists, in real life and online, the question of "how to talk to your kids about religion" comes up a lot. It's popped up at a Freethinking Females meetup I went to, in my online moms community, on the awesome Atheist Plus forum, and even in my book club (Are You There God, It's Me, Margaret was our selection)!
There are a lot of different ways that atheist parents have handled the "religion question." When my older daughter asked us what a church was, my husband explained that "some people believe in magic! And a church is where they go to talk about it. But we don't believe in magic, do we?" Children: Noooooo! "Right, we know that magic is just pretend. So we don't go to church." The kids have watched movies and TV shows with magic, so it was an easy parallel to draw. Magic is in the same category as ghosts, witches, and some other things I can't think of right now: fun to pretend sometimes, but not real.
One of the more common answers I've seen, though, puts the question back to the child: Some people believe X, some people believe Y, I believe Z, what do you think? And I have to say... I really disagree with this approach.
My feelings on this are probably influenced by my kids' ages - the older just started Kindergarten, so they're pretty little yet. They don't have a whole lot of critical thinking skills yet, and didn't pick up much formal logic in preschool. So when they ask me a question - it's my job, as a parent, to give them the best answer I can. And since I have gone through the work of reading about different religions, learning about history and biology and evolution, and putting my best efforts into this... why wouldn't I tell them that Daddy and I don't believe in gods? That some people do, but we think they're wrong? Framing it as "some people think X" minimizes the importance of the question, makes it a matter of opinion, and obscures the fact that religion really does present truth claims. It isn't a matter of opinion that you can have light-hearted little jokes about, like whether mushrooms are delicious or taste like dirt. This is important.
The other reason I happily tell my kids that we don't believe in magic is because religious people certainly have NO problem indoctrinating their children. Infants are baptized or circumcized, small children to go Sunday School and learn prayers, older children are catchecized, given First Communion, confirmed, and bar or bat mitzvahed. My Catholic co-worker isn't telling her kids "I believe all of this... but you think about it and tell me what you think." She's just taking them to mass every week.
So that's why we answered the religion question with a resounding "not real!", and I'd encourage other atheist parents to do the same. I'd be interested in hearing other people's thoughts on the matter - how you addressed it with your kids or young people in your life, if you have any, or how your parents addressed it with you!