Well, when do they start singing Christmas carols? Have you noticed how often they refer to the miracle of the virgin birth? It's in every other song. It was God's fulfilment of prophecy. It was a public sign authenticating Jesus' identity. This is the incarnation's beginning.
Therefore, do not let these words pass through your ears or your kids ears without some instruction on the matter. While you don't have to begin an anatomy lesson, let's think about what you can say that doesn't get more biological than they can retain.
For example, a few Christmases ago, we explained what a virgin was, "Someone who can't have kids". This is completely true. A virgin cannot birth children. If A, then not B. Therefore, we can show our kids the miracle of Christmas....of the incarnation.
Don't let squeamishness about sex take away from one of the central pieces of the Christmas story.