When the very real possibility exists that homeschooling can lead to me or my dh being chucked into jail (as has just happened to a homeschooling father in nearby Hamburg) or at least having to go to court, the issue of what to tell others can be a little awkward. Basically we follow a don't ask don't tell policy. We don't want our children to lie, but I have suggested they say something like, "We have the day off", if a stranger asks why they're out during school hours. Sometimes it's just not worth bringing up the issue of homeschooling.
As I previously mentioned, my son, Robbie, plays Yugioh cards. Once or twice a week he plays at a group which meets in the back of a gaming store. When I was picking him up there one day, one of the other boys heard us speaking English to each other. "Wow, " he commented to Robbie, "You must get really good grades in English at school!". "You could say that", replied Robbie laconically. Actually I wish he had blown their minds by saying that he doesn't go to school and doesn't have any grades, but I had to admire his slick response.