Explain to them what you are doing. Use words that they can understand. Talk, talk, talk! Name everything that you use. Let them feel it and taste it if it's not bad for them. Ask them questions! Ask them where the egg is or can he/she hand you the vanilla? Make sure that they understand safety. Most babies can be taught the word HOT. Anything dangerous should be called hot at this age. Knives are hot, stoves are hot. Say it like you mean it, too. They need to understand that hot means move away and don't touch. I usually say it quite dramatically until they instinctively move away when they hear the word.
Finally, make it fun. Cooking is a part of life for any family. If you invest in your little ones now, they will become confident chefs in the future. Are you overwhelmed with the idea of having them in the kitchen with you? Then plan for it! When you make your grocery list for next week, plan a meal that anyone could do. Fish sticks or chicken nuggets, frozen French fries and frozen peas and corn. Then, let them do the work. Show them what to do and stand back. You'll be surprised what your little ones can do, too.