hi,
the 1st year we had elves my middle son was 3 and eldest 5 (youngest wasnt here). they loved it. the following year my youngest was 3months old so didnt no anything of it, last year he was 15months old. he didnt understand much BUT he did notice when they (3 elves) were NOT sat under xmas tree - he would go there and point. he was forever trying to hug them and didnt understand they are not toys!
all in all it was good. i would say go for it. as others have said, start with elf moving from where you leave it to little ones room with a "mini" teddy etc. have it leave a cookie baking kit that little 1 can help mix etc. you DONT need it for the whole of december like alot of us do that have older kids, but maybe 3-4days b4 xmas only. then next year you can add for longer do more etc and i bet you see reactions that your child sort of knows it (if you know what i mean).
i know when i was doing a few clothing alterations other week when eldest 2 where at school, i thought i would be ok with lil man in room. he came over waving at elf and sayiing hello. i had to let him have a cuddle b4 i put her away!!! so now alterations have got to be done after bedtime or when he asleep. lol!
i'm sure everyone on here will help you as much as they can, they are really nice. x