I'm not really sure. I might explain to my kids that there's the spirit of Santa Claus which is basically the holiday spirit but I'm not sure about a fat guy coming down our chimney.
I think it's a good idea to tell your kids if they don't know after a while, however. A friend of mine grew up to be 14 before he knew Santa wasn't real. He got made fun of profusely at school when we got into a discussion about Santa.
-Lasereth