@waterflow Hopefully a helpful clarification and short sketch of the way I, a PhD in biological anthropology, would approach explaining it to my son (he's now 3 and doesn't seem to have a firm graspon gender or sex identity yet
):
SEX is biological and assigned at birth based on presence/absence of specific organs (there are at least 3 - male, female, intersex [with various combinations of internal/external sex organs]).
GENDER is the social role that one is assigned/assumed at birth and develops over a lifetime - this includes names, clothing, activities of daily living, dating and relationships, etc.
Unfortunately, in traditional Western culture, the same terms [male, female] have been used for sex and gender based on the incorrect assumption that there was a 100% correlation between the two. (In fact, that correlation has often been imposed on folks who didn't have sex and gender that matched, causing lots of pain to those folks.) Other cultures recognize more categories of genders, including modern Western culture, which has come to recognize NONBINARY genders, which fall on a spectrum between male and female. Nonbinary means "not two" which means someone doesn't fit into the two original categories of male and female.
In Western culture, gender is assigned to new babies by parents based on their sex, assuming that they match. For most folks, sex and gender do match, so things work out. But as they grow up, some folks realize that the gender assigned to them at birth doesn't match internal indicators of their gender identity- the gender assigned to them consistently seems that it doesn't fit them and makes life very uncomfortable. Being forced to act like someone you are not is hard, and our culture has not long accepted that this sex/gender mismatch happens. In these days, folks can choose to change their gender and social role to fit their internal identity by changing their name, clothes, etc.
There are a lot of complex relationships and interactions that form gender, so folks transitioning are doing a lot of work to get things changed over. We can help by remembering to call them by their chosen name and using their chosen pronouns (she, her). It takes some practice and we may slip up, but this is very important to her. Recognizing Uncle's transition to become Aunt is a way to show that we love them and understand that they are showing us who they really are inside, something that was incorrectly assumed for so many years.
We don't have to know anything about someone's SEX to know or accept someone's GENDER. We have already taught you that parts covered by a bathing suit are private and not for sharing, and that goes for questions- we don't ask people if their sex organs match their outward gender.
Hope this helps! Thank you for supporting your transitioning family member and loving your child as they are, too. Meeting folks "where they are" is a compassionate form of love.