Don't you just love the imagination of children? Watching them play and listening to their comments can be such a blessing!
Today I'd like to suggest that you acquire a 'soft' nativity set; one that is made of cloth and is unbreakable so children can play with it. (If you don't have one or are unable to find one, substitute some dolls and name them for the Biblical people in the Nativity scene).
Read the account of the birth of Jesus in the book of Luke, chapter 2 of the Bible*, and explain it to them in a simple way. Then suggest that they pretend that they were actually there when the Baby Jesus was born. What might it have been like? What would they have thought? How would they have felt? Would they have wanted to go into the stable and actually see the Baby Jesus? What might Mary and/or Joseph have said to them? You can go more or less in depth depending on the age of the children. This is a wonderful way to explore the account and make it personal.
Encourage the children to play with these characters on their own. Keep your ears open and you may have the joy of hearing what they have to say, as well as the opportunity to correct any misconceptions they may have.
This is also a great activity for older children....or even adults. How might you have felt if you had been there? What would you have done? You, as an adult, may well have known the Old Testament prophecy of the coming Messiah. Do you think you would have recognized that this Baby Jesus was in fact the promised Messiah? Would you, like Mary, have pondered these things in your heart? Take some time to meditate on this account and enjoy the wonder of Christmas!
*for the rest of the story, see Matthew's account in his gospel, end of chapter 1 and beginning of chapter 2.