It's always fun to watch children try to figure out how things work. In my house, I don't use the whole half-sibling or step-sibling terminology. However, they've picked up these concepts at school. So, they realize that many people consider their baby brother to be only their "half-brother". However, they are having trouble figuring out how my daughter's little sister fits in here. After all, they share a sister with her, but they don't really have any relation to her.
We define family by relationship, rather than biology, but this doesn't help them much here since they've never met her. It's rather interesting to watch them attempt to put this relationship into the limited boxes provided by a narrow minded society. My advice to them was to stop trying to label it and let's just focus on trying to develop the relationship.