Introducing my one less tooth niece

My soon to be 7 year old niece lost her first tooth.  She is super excited and evidently the tooth fairy visited her last night, but I haven't found out the details as of yet.  Her soon to be 3 year old brother was told about and his response was "what??".  Like, I just got these and you mean they fall out???  I told Celia and she stopped dead in her tracks and had a similar response.  Actualy her initialy response was to giggle and say "Mommy your silly, Katie didn't toot".  No, she lost her tooth Celia.  "Why?  She needs to find it and put it back."  I thought about how I was going to explain this and really went into great detail about baby teeth, grown up teeth, big kids, etc.  Celia's eyes glazed over with boredom and said "She has no tooth?"  I said she'll get another one there soon.  I expected some more questions, she said "Oh" and went about her business.  So that was that.  Here she is.

My little one is going through this phase of made up stories, she is just 2, I didn't think this started that early.  So when she has stories from school, I am not so sure if they are reall or fake.  When I picked her up today we discussed her day.  I asked her what she did in Splash room (indoor playground at their school).  She said "Oh, I bought some icecream".  I figured she was pretend playing in the room.  Well it extended further.  "Mommy, I am eating it right now.  I have vanilla icecream with sprinkles.  Red, white, blue...sprinkles."  It continued.  "Oh and I have some gum too Mommy".  Oh.  She has made up many things including telling me one day that the college student that comes in the afternoon was sent home by the director due to a really bad rash.  She even explained that she had to go home and see a nurse, but she will be okay, and be back the next day.  Well I asked Ms. Maryanne about this today and she laughed.  She said that she would have really freaked out if she had a rash bad enough to be sent home!  The way Celia explained it to me it was as if an adult had told her this.  But can you believe these conversations are coming from a not quite 2 1/2 year old??