L.,
Here is our story from earlier this year: our dog was ten and getting senile. He would walk into corners or under the table and forget how to get out. He would dig and dig in the middle of the floor (he'd never done that before). He was eating less. He was more arthritic, he was losing his eyesight, etc. I kept bringing all of this up to the vet, and she said if he got worse we would need to consider possible options.
One warm night this March we were all out in the backyard. Our neighbor, whom he had seen and played with many times, came over to our fence. He went crazy, snapping and biting and jumping at her. Our three year old came running to see what was bothering him because they were very close - he always smelled the flowers she picked and layed beside her while she colored, etc. I scooped him so he would be away from her and he turned and bit my face. I dropped him and he snapped at her but held himself back - I grabbed him and drug him inside the house. He bit my arm twice as I got him into the utility room (he didn't even know what had happened half an hour later and acted like he didn't know how to walk). She saw the whole thing, and was very scared. I called the vet the next morning, and we had him euthanized.
As you can imagine, our little one was very worried and concerned. I told her that he had gotten very old, and didn't remember who he was or who she was. She asked me many times what had happened, and I told her each time that he was very, very old and couldn't think right anymore. We had him cremated and she and her older sister wanted to go with me to get him. You may or may not be comfortable with that, but it helped them to hold the box he was in, and know he was at peace.
When they're both ready (her older sister isn't quite there yet) we're going to take him out to the woods he loved to walk in and have a small ceremony for him.
So, my advice would be to be as honest as you can with your son. He's young, and death is an abstract concept, but he'll get an idea of what happened as you explain it. I think it's better to have an understanding of the truth than be worried that other things he loves may go "bye bye" without him knowing first.
Best wishes, and I'm very sorry to hear about your dog.