My daughter was 5 and entering Waldorf kindergarten (and had been in Waldorf preschool since age 2.5) when I had my last miscarriage. I simply told her the baby went back to live with God. I told her that some babies just want to know what it is like to be in their mama's belly and then they go back to live with God.
She is 8 now and sometimes talks about "the babies that died in [my] belly". So, she knows exactly what happened. But, I do not get any hint of trauma from her as she, and her now 5 year old brother (who was just over 2 at the time) discuss it very matter of factly.
Mama to add 10/05; ds 3/09, and two angels. Expecting my 2nd rainbow baby 2/15!