How should one explain non-Jewish holidays and churches to young children?
I'd actually err towards inclusiveness:
Even though they're not Jewish, Hashem still wants them to be nice to each other, so they get together to talk about how to do that.
It's definitely a difficult balance, you don't want your kids thinking "oh why bother being Jewish if it's not really needed", but you don't want them spitting on every non-Jew they see in the street either.
Your approach may also depend on what your kid is seeing -- how to explain an an Eastern Orthodox church with pictures of saints all over the outside of it may be different than a Unitarian or Methodist church that just looks like a big brick building.
How about simply teaching your children to respect the differences in people based on their culture, religion, colour, nationality etc. There is no need for long explanations when we accept that people are different. And notice that I said the word accept and not tolerate.
I've always used something like these:
Churches: these are places where the non-Jews pray to their getshkes (idols). They're familiar with the concept of idols from hearing the stories of Avraham Avinu's childhood, for example. No need to go into the detailed theological issues of whether Christianity is or isn't real avodah zarah - that can be left for when they're a little older.
Non-Jewish holidays: we have our holidays when we do certain special things (the Seder on Pesach, shofar blowing on Rosh Hashanah, etc.). Lehavdil, the non-Jews have their holidays too; those aren't for us, just as Pesach, etc., aren't for them.