Oh boy, I have multiple ones I could post each day! (DS is 3 and talks non stop!).
The two funniest involve body parts (of course). I have tried to explain the difference between boys and girls in a proper, yet simple way (either way it's totally embarrassing when we're in a public restroom, so might as well have him using the correct terms, right?). Evidently that's the one thing that didn't stick b/c he still asks why sissy and I pee out of our butts!
Then one night he was laying back in the tub and said he had an "island" - the area where his boy bits were out of the water.