My son thinks of Santa as a spirit (like an actual spirit...japanese style... that can be flesh or not according to how they feel like). A very literal "spirit of christmas".
I was fortunate there, because when he was three, he came up with his own explanation of mall santas, tv santas, etc. I nearly fell over laughing, because I found out about his theory when he was having an "argument" with my husband about it.
"Daaaaaaad! Santa's a spirit, so he doesn't have to follow regular old rules like we do. He can just break off pieces of his spirit off and LOAN it to all of the PEOPLE. He could give thousands and thousands and thousands of little specks of his spirit to different people if he wanted, and it would let ALL of them be Santa while they had it. How do you think he makes it to every house in one night, huh??? Or to the Santa's that you get pictures with, huh???? Then when they go home at night, he takes the spirit-piece back. That's how he knows what you want for christmas, and whether or not you've been good. Just think about it dad... sometimes he has people dress up like him, but he could be ANYONE. You have to be good, or he'll know. No cheating. What if he SAW you kick Milo, and then you lied about it? Huh??? Bad twice!!"
And then he put on his very serious toddler-face and thought for a second "I BET though that there are some bad people who only PRETEND to have a piece of his spirit. So you have to pay attention with your heart too, and not just your eyes."
My son didn't really start talking until he was 2. (Maybe 4-10 words TOPS before then). Since then, he really hasn't been quiet. We sometime joke that he was saving his breath.