We told DD that the "reason for the season" is the earth's 23.4 degree tilt. And that many cultures, for many thousands of years, have had a celebration on or near the Winter Solstice. Basically it boils down to the sun not going away for good - mankind saw that the sun was on the way back, and so celebrated.
We've also gone over the similarities between the Jesus stories and ancient pagan god stories, and concluded that all religions are created by humans.
DD was always very logical, and we didn't want to lie to her. So, Santa never really caught on in our household. She always knew that Santa, the Spring/Easter Bunny, Tooth Fairy, "monsters" and storybook witches are all fiction. Some people pretend to believe in them, some people really do believe in them (but usually outgrow that), and some people don't even profess belief.
When she was bout 5 years old, she told me "I pretend to believe in Santa because the adults around me expect it." She knew not to burst other children's bubble, but she just always knew it was pretend.
(However, the year the Spring/Easter Bunny left Actual FOOTPRINTS in some mud in our yard, it was very exciting! Not completely believable, but very exciting!)
It probably also helped that we celebrate a number of different events during those last weeks of December, including Solstice/Yule, Christmas (strictly secular), a family birthday, and more. We have about 5 gift-giving occasions that time of year, so it's more spread out and less emphasis on any one particular holiday.