This will be our fourth year that our elf has been to stay, our DCs are 7 and 5. We have the official elf on the shelf but we don't really do the Father Christmas is watching thing and the kids are allowed to touch him. He's just a nice addition to our house in December.
He arrives on December 1st with the advent calendars and leaves on Christmas Eve. He gets up to different things every night and the DCs love getting up in the morning to see what he has been up to. There are loads of ideas on Pinterest and all over the Internet for elfy activities.
Last year he made a Christmas tree out of Lego, decorated the front door to look like a snowman, played with DD's barbies, decorated DD's dolls house with mini Christmas decorations, had a wee and turned the toilet green, was found in a bowl of red and green M&Ms, played with DS's trains, etc.
You will find a lot of elf frothers on MN who think an elf 'dilutes the magic' of Christmas, that it's creepy and so on. Our DCs love him and I have fun planning stuff. Even DP who is pretty cynical about this kind of thing gets into it. This year our Elf is going to be accompanied by a friend for the first time (girl elf bought on eBay for 7 quid).