NaramSuen, sounds like you could have used a copy of Ogre Battle 64.
I've been trying to introduce my niece to video games, who is going to be six this summer. She partially gets the concept of "download play" since one of her school friends must have one, but she doesn't grasp the idea that you can only use it for certain games.
What amazes me is how few games there are for someone her age that are good. My mom got her the Tangled game for the Wii, and the major issue is that the 3rd dimension is honestly rather complicated for a child. Swapping between characters and using specific abilities in certain sections is also more than some kids her age can handle. I'm having this trouble with her again after buying her LEGO Batman for the DS. Nintendogs was her first game, and holy crap did I not realize how much reading was required. Since she's not all that good with reading yet (getting better, but not good enough for Nintendogs) she doesn't have much of an idea on what to do. Even Castle Crashers is a bit complicated for her. The only game she can really play without my having to help her is New Super Mario Bros., where she excitedly jumped up, ran to me and showed me how the giant mushroom made Mario huge.
That these kids don't remember Mario much is surprising to me, as it seems to be the only game franchise to maintain a simplicity that even little kids can grasp (at least, the New Super Mario Bros. series. Galaxy would likely raise some issues).
I wonder if the best place for kids games might actually be in the digital downloads market, where you make smaller games like the old days. In fact, I should see how she likes World of Goo. Aside from Mario Bros. the only other game she can truly play is Castle Crashers, and that's not really meant for kids anyway.
The modern games industry seems built for kids 10 and up, which is a bit problematic. As for your 13 year old nephew, well, he's 13. He's entered that phase where...well, when I was that age I hated Legend of Zelda: The Wind Waker because it looked like Blue's Clues.
He'll wise up and learn.