I can't think of a time in my life when I *didn't* know about the Holocaust.
There must have been such a time, nobody takes their three year old kid and one day decides to tell them of horrific things, but I can't recall it.
My nieces are 5 and 2.5, and the older one is right about the time when she should be learning about serious subjects.
This is, I think, a good introduction to what is a very serious subject indeed.
The reality of the Holocaust isn't diluted, but it's told at a level that's appropriate for small children - losing a friend and lifelong regret, and you know she didn't survive, but that's not spelled out.
Whenever you decide it's appropriate to start talking to your kids about this sort of subject, consider this book.