I am an atheist but I'm not a parent so take that info for what it's worth.
I think a child of that age can understand, and have explained to them, what the praying child was doing (in a general way). I have no idea what one seven year old can impart to another on the subject of theology but it's not a lot.
As an atheist myself my (hypothetical) child would have a basic understanding of the concept of God anyway. Later, maybe soon after that age (school age in general) I would likely have started some kind of religious education on my own. (assuming my child were educated in a public school like I was) I would give a special focus on Christianity for the sole reason of it's value in understanding American literature.
I don't think kids ought to be sheltered from religion anymore than they should be sheltered in it. But some knowledge is needed to understand the culture, traditions, literature... etc of America.
All that said, what the Hell was uscitizen implying about Santa?