My girlfriend has a 3 year old son, I tried giving him a few games to play (simple things like Crash Bandicoot) but I found 2 problems - no matter how hard I tried to explain, or how long I let him play he never seemed to grasp the concept of what he was actually doing - never got that he needed to jump over holes and spin to kill enemies. I figured maybe he was just too young. I also noticed that whenever I would take him off it, for whatever reason, he would always erupt into a rage and he would be next to impossible to console for a fairly long period.
She bought him a pre-owned DS a while back and a Disney Cars game for him - she wanted him to have something to do on long car rides and while I played football - despite the fact that he never really grasped how to play it properly it was easily the object of his affection and he would refuse to let it go, having tantrums when it was taken away from him or even when it would go flat. After only a few days of this we took it off and resolved not to let him play games anymore (which in turn affected my ability to play games with him around) she gave it to him again last night as a bit of a test after him not playing it for 2-3 months and we saw nothing different from our previous experiences.
So I guess what I'm saying is be careful, I never liked to admit to such things as 'gaming addiction' even existing or that games had that much of an effect on the human mind, but I learnt that at least with very young children there can be some scary effects. By all means try and teach your nephew about games but make sure he understands from the start that he only gets a limited time to play and when that time is up there is no more, if he can't grasp that I wouldn't be giving him any games yet.