When we have any kids on board they must wear one when underway. When below it's optional. When anchored it's likewise optional, but then they're usually wearing some sort of swimming assistance floats (water wings, vest, belt, etc).
We've also had our 3yo take swim lessons through
http://www.infantswim.com and have been very pleased at the results. Basically it teaches a child how to get back to the surface and float. Which is important given the murky waters of the Bay. We started him at 9 months and have refreshed each Spring since. He's now up to swim-float-swim, which teaches how to alternate between floating and taking some strokes and kicks toward the side of the pool.
I recently witnessed a friend's child accidentally fall in at a neighbor's pool (sitting on the side, kicking and splashing). The poor kid looked like she was paralyzed as she sank like a stone, and did nothing about it. Her Dad was in like a shot and fished her out, no worse for the experience. But it was telling watching (for all of probably 3 seconds) her just SINK. It was dramatically different than how our child and others that have taken the class deal with it. They immediately start swimming back up to the surface.
So even with PFDs there's still a lot to be said for getting a child some lessons on how to handle being in the water. I strongly encourage all parents to get lessons for their children. And the great thing about infantswim is they do the teaching, you don't have to get in the water (and deal with the stress).