Sean McCann, who who was just two years old when his older sister went missing during a family holiday to Portugal in 2007, asked his mother about claims she was involved in Madeleine's disappearance.
Kate told a libel trial that said Sean had asked her about the allegations made in former police chief, Goncalo Amaral's, book.
She told the court that Sean had heard about Mr Amaral's allegations on the radio while travelling on the school bus.
The McCanns are suing Mr Amaral, who claimed the couple were involved in their daughter's disappearance.
In an impact statement at Lisbon's Palace of Justice, Kate said: "Sean asked me in October, 'Mr Amaral said you hid Madeleine'.
"I just said that he said a lot of silly things."
Sean and his twin sister Amelie were asleep in the holiday apartment in Praia da Luz, when Madeleine went missing.
Kate told the court her family made efforts to keep information about the abduction away from their children.
She explained: "We try and anticipate if there is going to be any media coverage so they don't get any shocks and are prepared and confident to handle it.
"It is very distressing to us as adults so for a child it would be very, very distressing."
She also told the court that the children were now old enough to use computers at school and home and had to be supervised.
Kate told the judge there was no doubt that Mr Amaral's allegations had done 'severe damage' to their struggle to find Madeleine.
Mr Amaral was the police officer in charge of the investigation into Madeleine's disappearance, but was sacked after becoming convinced that Kate and Gerry McCann were in some way involved.
He later wrote a book, entitled The Truth of the Lie, in which he made a series of allegations against the couple.
Kate and Gerry were declared 'arguidos', or persons of interest in the investigation in September 2007, but were later absolved of any involvement after Mr Amaral was sacked.
Speaking after their appearance at the hearing in Lisbon, the couple said they believed whoever took their daughter would now be laughing at Mr Amaral's claims that they had hidden the body.
Gerry also said the couple feared the person responsible would strike again.
He said: "There's an unsolved serious crime and there's a series of other crimes against children which have come to light who have been on holiday so at the very least these people need to be brought to justice.
"We don't know if Madeleine is alive or dead but there is no evidence that she is dead and she is a missing child and she is completely innocent."
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