Carving a jack-o'-lantern is a great Halloween tradition. Children love to design faces and especially enjoy removing a pumpkin's mush. Unfortunately, pumpkin carving as a party activity for children has inherent problems. It takes time to carve a pumpkin, even if you've already cleaned and prepared it, and little children can't safely use sharp knives. Your best bet with younger children is to buy small pumpkin-like gourds, and offer children black markers to draw on faces or pre-cut pieces of craft foam or felt and google-eyes to glue on, letting them decorate a pumpkin each. Have a contest for scariest face, weirdest face, etc.
Like most activities for small children, you don't want to leave anyone out—have as many categories as you have pumpkins—then everyone wins. Consider making ribbons for the kids to attach to their pumpkins to show their award! Another great jack-o'-lantern creating idea is to make large, pumpkin-shaped sugar cookies and bring out a supply of icings, sprinkles, etc. and have a jack-o'-cookie decorating contest.