My mother was a skilled genealogist. She spent much time explaining to me the connections we share with distant relatives. I find it fascinating, and I am blessed that I can reference the almost 400 page book that my mother wrote on my heritage.
M has some concept of family lineage as well. When we talk about grandma and grandpa (and especially about grandpa, since she has two of them living), she is always quick to clarify that we are discussing "my mom's dad" or "my dad's dad."
I think its awfully cute, but at the same time, I think she is very intelligent to be able to see those connections at a mere three years old. Perhaps she will follow in her maternal grandmother's footsteps as a genealogist!