As it turns out, my kids love sewing! I only stumbled across it by chance when I got in a delivery of kids sewing needles and they both jumped at the chance to have a go.
The first activity I did with them was actually paper sewing. It's so easy to set up and a great starter for kids just learning. Simply get some sheets of paper and using a felt tip marker make dots or small circles on the sheet where you want the children to poke the needle through, I used a mix of straight lines, zig zags and random dots on the page. I used wool for our first attempts as I found having a thick thread made them more aware of where it was and harder to get all tangled up. They were suprisingly speedy and I had to keep marking up new sheets as they zoomed through the few I had pre-prepared.
We graduated from that onto using buttons as well, and used buttons to make eyes and noses on some face outlines I drew. The only issue I had was finding buttons with holes large enough for the child sized plastic needles.
After paper we moved on to felt. At this stage I just let them sew free form and create what they wanted. Felt was a bit tougher for the needle to go through so I found my youngest gave up at this point but my eldest kept at it and made some delightful creations (that were clear to themselves only!).
Why is sewing good for fine motor skills?
Firstly it helps them because the needle is fine and small, and they have small hands and are usually used to chunky crayons, brushes and textas - so it's good practice for them holding a smaller object as they graduate to pencils and pens and other small work tools like fine paint brushes. It's great for aiming and hand-eye-coordination which is another facet of developing fine motor skills - them actually getting the needle to go where they want it can be a challenge for some at first but because it's a simple task they are more likely to stick with it and therefore get better. Any 'fine motor skills' type activity helps build strength in their hands, so be it practicing sewing, playdough, using scissors etc it is important that the kids get strength in their hands so that they can steadily and accurately use tools such as needles, scissors, hold a pencil and so forth.