When I decide to procreate, I'm not sure if I am terrified of or excited for the inevitable "Where do baby's come from?" question. You can go in a lot of different directions with your response. You can get super creative, you can get a little graphic, gets some diagrams out, you can show a crazy video that scars your child for life...it's your choice, I like that.
For those of you who would like to remain politically correct in this crazy mixed up world of ours, I recommend What Makes a Baby by Cory Silverberg. It's a children's picture book that covers the whole baby making situation with an appropriate amount of vagueness when it comes to the people who actually make the baby. Focusing on the sperm and the egg individually and what their jobs are, not who has what part. It's designed for every kind of family, and every kind of kid, so no one is left out. It gives the traditional families a way to explain the baby making process without having their child think that a non-traditional kid in their class at school is a weirdo. And if you think that kids don't discuss this stuff with each other, you are crazy. No matter what the age, they talk.
I especially enjoyed the pages with the questions: "Who helped bring together the sperm and the egg that made you?" and "Who was happy that it was YOU who grew?" This gives parents a moment to discuss their individual situation, whatever that may be. I think it's extremely important for children to realize that not every child is born into this world the same way, with the same types of families. If you begin teaching your children these lessons at a young age, I truly believe that it will make them more tolerant of different people and less inclined to bully. Also, Silverberg made answering that inevitable question super easy and not even remotely uncomfortable.