DD was 2.5 last time I had a period (yay nursing, it's been over two years now between pregnancy and breastfeeding, going to knock on wood now). She asked then, and I told her that women who aren't pregnant bleed once a month when the lining in their wombs come out. She wasn't too phased.
The other day, I was going to pick up my birth control pills and we ran late and couldn't get them in time for me to take them that night, and she was saying, "Now you're going to get pregnant and have another baby." So I had to explain that it's not likely since 1. I don't have my period back (and had to explain period again to her) and 2. I wouldn't stay pregnant even if it happened by accident (she knows about abortion too, that one I didn't have to explain).
I explained it pretty much the way I did the first time, though, that you bleed once a month when you're not pregnant, that it's a way for your uterus to clean itself out and rebuild a fresh lining in case you do get pregnant the next time around. She's 4.5 now and doesn't seem bothered by it. No one in our house has any modesty, so I'm sure she'll see it again and we'll talk about it more when I do get my period back (please not for a loooong time).