I'm with dashley and Jaime - Kieran (now 3.5yrs) has always heard proper body part names, and we've been very open about how babies develop in the uterus, and that babies come out of the mama's vagina. I've told him his own birth story many times - for awhile he was requesting it as a nightly bedtime story.
When he has asked in the past how baby gets in the uterus, I've told him that mama has an egg and papa has a sperm, and we watched that video (it circulated on FB for awhile) that shows a really cool computer generated sperm fertilizing the egg, then the baby develops.
That has satisfied him so far.
The other day, he had just gotten out of the shower and was admiring himself in the mirror, and he said "mama, I love my testicles." I said, "did you know what is in your testicles?" He said, "no, what?!" I said "sperm!" He said, "sperm? Like in a baby?" I said yes, that it was the same sperm needed to make a baby. He was thoughtful for a minute and then said, "mama, how does the sperm get out of my testicles?" I said, "it can come out of your penis." He giggled like a fiend. A few minutes later he said, "mama, I don't want to be a papa when I grow up." I asked why, and he said "because I don't want sperm to come out of my penis."
I told him that he never had to be a papa if he didn't want to be. But inside I was thinking, just wait, kid!