"Water, fire, air and dirt,
Pinhole cameras, how do they work?"
Same way magnets work: Miracles. :D
That is precisely how I would have answered the question. Of course, I would have followed up with "But really, the light from an object passes through the aperture, getting inverted along the way, until it hits the paper or film and produces an image." I mean, defining focal length, f-stop and diffraction and all that jazz is fun, but most of the time people are either wondering about why you're standing there with a Quaker Oats tin, or they're trying to tell you that you've left your body cap on.
Hmmm, so maybe we can't ask babies what they see... but they do give them acuity tests right after birth. Also, there are survivors of head trauma who have had inverted vision for a period of time. And then, it might just be FM (freakin magic) after all.
It possibly an explanation why babies are always falling down.....
I always explained pinholes with the fact that light travels in straight lines/rays through air (may be a half-truth, but good enough for most people and easy to prove) and a little sketch of a camera. It's not hard to understand that only the rays of light that form the image are let through and all others are blocked. When it comes to more complicated cameras, "magic" is the more useful explanation, as I could explain it all, but would take days.
Also, the cornea is not the primary focusing device of the eye. Your eye has a lens just behind the iris, that changes shape to focus at different distances. Pupil is the variable aperture and retina is the receiver of the upside-down, reversed image. Brain makes the corrections necessary for understanding of what our eye perceives.
Imagine you're in a pinhole camera, or better yet, picture a large room that's been made into a camera obscura with 1 small diameter hole in the window looking outside, and a large flat wall opposite that.
Ok, now imagine what you'd see through that hole if you were looking out from various points on the wall. Putting your head near the floor for instance, you'd be looking up through the hole and out onto perhaps the top of a tree, the sky, or the roof of your neighbors house. Now put your head near the ceilling and through the hole you can only see the ground outside, the trunk of a tree, or the sidewalk.
The aperture only lets in a small circle of light from any given direction and this shines on the back wall. Imagine every point on the back wall and knowing that there's a ray of light making a beeline from the outside to the inside... well you can see basically how the image is formed.
And it's true, you could have a 5-foot diameter window and as long as the "film plane" was (perhaps) several hundred feet on the other end, an image would be formed.