One of my college students was asked by a three year old why she wore balloons under her shirt as the child touched her chest. She wanted to know what to say.
Answer in simple language using accurate terms. If the child is ready for the beginning discussion then letting the child know that some body parts are considered private is appropriate.
Sample: You are curious about my chest. Women have differnt chests than boys and men do. (This is a good example of answering a question without going too far. if the child has more questions then he/she will ask and then you can give more information.)