They handle the gears surprisingly well. At first we just set a gear based on watching our daughter pedal. By about age 7 she was shifting it on her own. I believe 7 gears is plenty, unless you have unusually large hills. The gears allow a faster cadence, and less stress on young knees.
Look for a good used quality bike on Craigslist, or the few bike shops the sell used bikes. We bought our daughters 20" used, and we just sold it for the same amount 5 years later ($100).
Last edited by sunflowerflyer; 12-17-08 at 12:34 AM.