Why do you wonder at this, O Man?

How is it that Mary is still a virgin even though she had a baby?
Great question, one that requires a careful answer.
First off, its a mystery.
Our human minds cannot easily grasp the technical workings of how a baby was conceived inside a woman without a man being involved. Mary even asked the angel how it could be so: "How shall this be done, because I know not man?" The angel assured her: "The Holy Ghost shall come upon thee and the power of the Most High shall overshadow thee. And therefore also the Holy which shall be born of thee shall be called the Son of God."
St Joseph didn't understand it either. He was betrothed to Mary and upon discovering her condition, decided to put her away quietly, as the Bible says. This means that he was going to break off the marriage with her in a quiet manner so as to spare her from the shame, public humiliation, and probably death that would result from her "adultery" being made known. It took an angel in a dream to convince Joseph that Mary was innocent of any wrongdoing, and to the contrary, was blessed beyond any other woman in the world: "The Angel of the Lord appeared to him in his sleep, saying: Joseph, son of David, fear not to take unto thee Mary thy wife, for that which is conceived in her, is of the Holy Ghost."
So the Bible makes it clear that Mary was "overshdowed" by the Holy Spirit, making Him the Father of Jesus and leaving Mary a virgin. This answer was not particularly helpful to the eight-grader who asked it of me. He was still thinking... "Yes, but... How?"
Unfortunately, I could not give him a biological explanation of the process of 'overshadowing' as a health class would be able to of the processes of human reproduction. I came upon a great meditation on this subject though, in Fr. Gabriel's Divine Intimacy, in his chapter, "Spouse of the Holy Spirit."
He says that the Holy Spirit, already in Mary's sinless soul from birth to an extent we can barely imagine, come upon her in such fullness that that He formed within her womb the Body of Jesus. She was so filled with God that she conceived God. She was such a tabernacle of the Lord in a spiritual sense that she bacame a tabernacle in a bodily sense. This we can see in our own lives to a ceratin degree. We talk about the bodily manifestations of interior thoughts and feelings all the time. When you are upset, your friends only need to look at your face. When you are filled with grace, people will be able to tell from the outide. We say that "her face shone" when she came out of confession, that after receiving Communion, he looked like he "had died and gone to heaven." The fruits of grace have an effect not only on our souls, but also on our bodies. So too was there a bodily result from the intense power and grace of God filling Mary, so much so, that a new body was created within her.
This is but a poor treatment of such a glorious subject, but I can only encourage you to meditate and pray about this mystery. The virginity of Mary is one of our most cherished beliefs as Catholics, one that sets us apart from other Christian groups.
I could say to that eight-grader that with God anything is possible. I could say that as lowly creatures, it is not up to us to demand an explanation from the Most High of how He chooses to work. I could say that the Church said so, and that's the end of it. But it boils down to the gift of Understanding that we all receive in the sacrament of Confirmation and that sadly only some of us work to develop. We pray to understand the mysteries of the faith, not so that we can start imagining how Mary's body reacted to the Holy Spirit, but so that we start to see how it could not have been any other way. We start to see the vast significances and beautiful intricacies of God's plan for Incarnation in the way that it happened, as compared to any other way. We start to see that God has a reason for everything, even if we do not follow His reasoning. We start to see the love and care God has for us, that all things work together for our own good if we want to accept His love.
Mary's virginity is a mystery of the faith. We know that it is so because the Church teaches it is, both from Tradition and from the Bible itself. This knowledge is a gift to us, and we must pray that the Holy Spirit fill us with His graces and gifts too, so that we may understand and love.
"It was not the visible sun, but its invisible Creator who consecrated this day for us, when the Virgin Mother, fertile of womb and integral in her virginity, brought him forth, made visible for us, by whom, when he was invisible, she too was created. A Virgin conceiving, a Virgin bearing, a Virgin pregnant, a Virgin bringing forth, a Virgin perpetual. Why do you wonder at this, O man?" (Augustine Sermons 186:1 [A.D. 411]).
Links to articles:
http://www.catholic-pages.com/dir/ever_virgin.asp
http://www.ewtn.com/faith/Teachings/maryc2.htm
http://www.newadvent.org/cathen/15464b.htm