We have taught our kids the proper terms from the very beginning. I think this is very important for several reasons. Boys have a penis, just as they have a nose or a mouth. Girls have a vulva, just as they have knees and toes. Why do people use different names for genitals? I feel this sends a message that these parts are somehow dirty or shameful. If they learn all the proper terms of body parts, and are used to using these terms, they aren't embarrassed to ask questions about their bodies as they grow and mature. This comes in handy at the onset of puberty or when they start asking questions about sex or where babies come from.
Another BIG reason to teach the proper terms is to help prevent and determine sexual abuse. Years ago, as a teacher, I attended a teaching seminar about abuse. One presenter made it very clear how important the proper terms are. She shared a case story with us. A little girl in Kindergarten told her teacher that someone had been touching her "cupcake". Of course, the teacher thought she was referring to food. Later it was learned that this little girl was trying to reveal that an adult at home was inappropriately fondling her. If she had stated in the beginning that someone was touching her "vagina" or "privates" then she would have gotten the help she needed much sooner.
Which leads me explain that it's also important to teach kids their genitals are "private", and to explain what "private" means. As in no one should be touching them. Only Mom, Dad, a nurse or doctor to keep them clean and healthy.
This reminds me of a visit with my parents. DS and DD were playing catch, and the ball hit DS's groin. He yelped, "OW! That hit my penis!" DD apologized and teased him for not catching it. Meanwhile my Father was giving me a very dirty look. I asked, "What's wrong?" He replied angrily, "I can't believe you taught him THAT word!" Me: "What word??" Dad: "The 'P' word!" OMG, I was trying very hard not to laugh in his face. I said, "You mean "penis"? Yes, Ty has one, as all boys do, and Beth also knows she has breasts and a vagina. Imagine that?!" My Dad still isn't happy with me, but tough cookies. LOL!