Can seven-year-olds grok abstract concepts yet, or does that come later? My temptation would be to say "Bitcoins are like dollars, except they only exist on computers, and can only be exchanged on the Internet." (Yeah, I know you could have a private key embedded in something hardware; I wouldn't be comfortable with that before I'd sent it to a new address ... and besides, we're talking to a seven-year-old. What do you want from me?)