Knowing how to sew is an important life skill and it's one kids can learn early. With the proper precautions kids as young as 5 can learn how to sew. There are also plenty of yarn and string projects that can be done with minimal space (they're great for a car ride!).
String Figures: Remember Cat's Cradle? This site has string figures of many different difficulties to try.
Finger Knitting: This may look complicated at first but it is actually quite simple. I have taught 5-year-olds how to finger knit in only a few minutes, and once they learned they couldn't get enough of it.