Always use the right names for sex organs. Toddlers are curious about the bodies of their parents and other children. This is a normal way for kids to find out differences and learn about their sexuality. You can choose to allow it or not. But it won't help to punish children for being normal.
Most kids touch their sex organs for pleasure.
Masturbation is very common during this time. You don't have to describe sexual intercourse at this point. Answers should be simple for now. As the years pass, you can slowly add other details as the child becomes able to understand them. Kids may even be jealous of the other parent or partner.