First a warning - I am an atheist so this might clash with some of your views.
Religion is a human construct and a vital part of a society. And as long as its impacts are positive, as long as it causes no harm, I'm certainly fine with it. For many, it provides a common cultural identity, helps define and enforce their values and ethics, and provides an explanation and purpose both to life, and death. There can be a god, or many, some immortal, some all-knowing, some good, some evil, watchers or meddlers, human-like or not. It is an institution based on belief, and can be accepted by its followers without the necessity of logical factual proof of any of its tenents. With the added benefit of then being able to appeal to their imagination by adding elements beyond the realm of science.
Speaking 0f mythology, the concept of Santa promotes the values of kindness, of gift-giving, of celebration of family and friends, of consequences when rules are followed (or not). Because he is always watching. Or those elves. Flying in a sleigh, squeezing down a chimney, all can be accepted on the basis of just believing.
So what do we say when our children ask about Santa? Do we say he is just a belief, with a positive impact on our lives, and leave it at that? What do we say when they ask about Jesus, or other gods?