L.M.
I recommend a book by Dr. Laura Berman called "Talking to your Kids About Sex." It is for the parents, and explains how to talk to your kids at every age. It has diagrams you can use to educate your children. She also has a radio show on XM/Sirius on the Oprah Network, which I highly recommend. The main thing she has said about this age is just give them the facts about what she asked. Don't elaborate and don't answer questions they haven't asked.
Based on her age, I think you're in for a lot more questions like this and its a great time to open the dialouge.