i think Em's mention of your own beliefs is really important. if you are religious, you will approach it very differently (heaven etc) than if you're not

if you want simplistic terms, perhaps just explain that she was very sick, and she can't be at kinder anymore. you can mention that she died, and only go into more depth if you feel it's needed. only you will know what your children will grasp best.

i know my IL's said to their three year old that BIL had gone to heaven when he died. she didnt' understand that (not religious and it had never been explained) - when they went to view him before the funeral, the three year old said "i didn't know heaven was in (town name)" - she simply didn't understand when it wasn't explained in terms she got kwim?