By that age we had a son in the house, so sister naturally saw the differences between boys and girls. You could simply say to her that boys and girls have different "privite" parts, this is assuming that she already knows that certain areas of her body are privite.
I just wanted to share a silly story with you about short hair etc. My kids (8yo dd, 5 yo ds) retold a story to me in the car one day that I was not really prepared for. Their cousin (9yo Girl) told them about this girl who looked so much like a boy that she HAD to merry another girl and they both had babies! It was a great teaching moment for me to try and explain that she didn't HAVE to merry a girl BECAUSE she looked like a boy. But that also adults make their own choises. Then my DS wanted to know if two boys got married would they both have babies. I said no, they don't have the right parts for that. To which he replied, "oh we do, they are just too small for holding babies!" WHAT??? LOL
They are so sweet and innocent. I love that they are realizing that people are different in lots of different ways and that adults get to make choices for themselves without labeling them one way or another.