[RPG] Building a History in a Homebrew World

I would say that you want to have a sort of reverse-donut shape for the detail-level of your campaign: Lots of detail at the top levels, lots of detail about the areas surrounding the players, and not as much in between.

Think about how the information will be used by the players. Obviously the lowest-level stuff (inside-out) is vitally important... That's what the players are experiencing now. The high level stuff is important too: when a player thinks about the world they're in, they'll be looking for a high-level overview (outside-in).

The stuff in between (the districts in your example), just isn't very important most of the time. There will be a few that are (locations of natural wonders, or important characters). There will be a few that the players need to interact with. Everything else can wait until they're needed.

Leaving this middle-tier somewhat hazy has the added advantage of allowing you room to improvise. If you need a town, you can add it to the blank areas of the map. The same for a forest, or a river, or a lake, or anything else your campaign requires. Role playing campaigns are much more fluid than most other forms of fiction, and having the extra room to improvise can be extremely helpful.

Start with pre-made Characters

By which I don't mean generic characters that could be in any fantasy story, but by creating a character specifically for each of your children. These characters should be based around the characters from movies and TV shows they each seem to be drawn most toward. It's not the perfect fit that character creation is, but it can let you leap over the hurdles that character creation presents to a new player and let your children get right into the game. Your child's statement about it feeling exactly like a movie is what you want to most emulate.

Use essentials classes only, specifically MBA focused ones

Essentials classes (the Knight, the Slayer, the Warpriest for example) are built around having strong class features (always on) vs. making choices between how to use encounter and daily powers to most benefit the party. They work best in Heroic Tier (levels 1-10) and are strong classes that do not require as much optimization as the AEDU classes do. more importantly they focus on what are iconic archetypes both within and without of D&D. The Knight and the Slayer for example are both actually sub-classes of the traditional fighter. The first wears heavy armor and is all about protecting his friends while the second is about dealing as much damage as possible to monsters.

Use inherent bonuses

One of the best rules options you can take advantage of is inherent bonuses. Found in Dungeon Master's Guide 2, p. 138. as well as the Dark Sun Campaign Guide Book, p. 209 (where it was expanded) inherent bonuses take the place of magic items for the purposes of system math. At set levels the characters will gain +1, +2 etc. to their to hit rolls, damage rolls, and their defense stats. Magic items are still compatible in that their properties, item attacks, and bonuses to crit damage remain, but their mathematical bonus does not stack with inherent bonuses. Whichever bonus is largest is used.

Focus on the story and the adventure, adjudicate their actions to fit

If you were playing 4e with adults I would wholly say to depend upon the use of the powers their characters have and play the system as-is. However this may be a difficult pill for your children to swallow all at once (there are plenty of adults on the internet that can't handle 4e's separation of fluff, the descriptions and lore, from crunch, the hard rules themselves). When your children's turns in combat come up or they are making decisions out of combat ask them what they want their character to do and then based on their answer formulate what their character would do mechanically and then walk them through what their character does. This way you can introduce and have them take over parts of the rules at 1 piece at a time.