Simple: cut out a color of cardstock you like into a star shape. Don't have a stencil to use? Easy to make a template (draw a star you like, then copy it onto a piece of cardstock and cut, there you have your original.) or get a cookie cutter, an ink pad and use a stamp pad to stamp the shape onto the cardstock. (Felt also works well with this. Just did a bunch of gingerbread men.) Then, cut it out, let kiddo decorate one side with markers, or put dots of glue on and let her shake glitter over it. (If you do this in a box lid with sides, it's easier to clean up.) Use a hole punch and make a hole for a ribbon to hang, or use embroidery floss, poke a hole with a needle after the creation is done/dry, and make a loop with some floss and knot. Simple.
I have also done green construction paper/cardstock trees with star stickers or other small, shiny stickers you might find. If you do a larger tree, you can use the garage sale dots (no prices on them) which may be more manageable for little fingers. Do hanging loops as mentioned above.
I've also done this with three year olds-- the felt shape (cookie cutters) made twice (use two per ornament) -- use notions or trimmings to decorate as you choose (for our gingerbread men we are doing rickrack and beads, googly eyes, fabric markers), use tacky glue to affix items to create a cute/pretty ornament on one shape piece, then when you are done with it, take another and make a 'sandwich' of them with a loop of ribbon at the top for hanging. Glue all together-- voila, cute ornament that kids can handle!