We are on a small inland lake so our sailing windows with kids were frequent. I agree with Matt that the experience has to be FUN and Comfortable. As soon as either the fun factor or comfort factor is no longer there its time to head in.
I have four kids. We got them on to our 16's at two or three (in selected conditions), they took the helm at eight or nine, my oldest and her sister took one of the 16's out themselves just this year (14 and 12 years old) in VERY selected conditions.
I have raced with three of them at one time (still didn't meet minimum weight - ha) in our club races when they were 6,8 and 10. One would crew for the starboard tacks, another for the port tacks and the third had the vital job of watching the other boats and keeping us level. (I think now he thinks he may have got a little screwed).
Laura and I always stressed NO LIFEJACKET - NO BOAT
have fun,
John