We have always made sure that our children understood where meat comes from. When it is butchering time, if they want to help corral the birds or pluck, we let them, if they don't want to help, they don't need to. I find that not making a big deal out of it is the best thing you can do, as kids will base a lot of their reaction on your subtle body language, not just your words. Answer their questions truthfully, we always have told our children that everything has a purpose. I also found that raising cornish cross helps because the kids can see that the birds really aren't meant to live a long life just by the way they grow.
Each child handles it differently but even the three year old understands that when we eat chicken, beef, or pork that it came from an animal that was butchered out. I always tell them that even meat animals deserve a quality of life and regardless of how long or short somethings life is, we will give it a good life and put it to good use.
I also make sure that the children know that mommy would never ask daddy to do something that she wouldn't do herself, i.e. the actual slaughter or cleaning of the carcasses. My DH usually does the butchering and I appreciate it but I have been known to thin the flock on occasion.