Using wordprocessors to keyboard childrens short stories is a common activity. These links will help you if you think you would like to take a typing test. Let's not forget the paper though, because without a pencil and paper we won't get the planning needed by the Elements of a Short Story and your child would end up staring aimlessly at the screen.
So get some planning in first. Answer the the Five Ws
and then choose the program.
Since creative writing is about the story and not how it looks, Microsoft Word is generally too much to throw at this task.
On the other hand, although adequate, your Notepad editor is a bit lacking.
I suggest WordPad, in Accessories. It is just the right mix of formatting when you need it and versatility. What do I mean? Well you can easily apply Bold, Italic and Underlining as well as bullets without all of the learning curve of Microsoft Word. You can indent paragraphs and do everything needed for most homework assignments. Yet Microsoft Word can read the RTF files WordPad produces if you need to do more.
When the story is ready, a simple copy and paste into our submission form, and the formatting will be stripped away but leave us the bare story. That's how we want to see it. That way everyone is compared fairly.
So before you go any further, set-up a new folder to hold stories, and put an Icon on your desktop to run WordPad.
Then to learn about using computers and other devices in the classroom try
Technology in Early Childhood Education.