It's easy for young students to get distracted during their lessons--they're often worried about their performance, or their minds wonder while the teacher is talking. Likewise, many students are used to passively listening to music, for example, having it in the background while they work instead of focusing their entire attention on listening. Active listening is listening with full attention and working to understand what you hear. It's a useful social skill in many contexts, but especially important in music.
There are many techniques I use with students to encourage them to actively listen. With young students, I might make it a bit of a game. I tell them that their fingers (or hands, muscles, etc.) don't hear me, but respond better when they (the student) gives them instructions. So instead of me repeating directions, I ask my students to say directions out loud to their fingers. This helps them in many different ways. First, if a student misunderstands what I said, I catch it immediately (there can be a striking difference between what I say and what they hear). Second, it encourages students to take responsibility for their own progress. Instead of relying on me to always catch mistakes and tell them about it, they have to repeat my instructions to themselves and try to recognize their own errors.
Other skills in active listening might include encouraging students to make eye contact and ask clarifying questions when they don't understand what I've said. Many students aren't used to one on one instruction with a private teacher, so they might look away shyly or fiddle with their instruments while I'm talking instead of listening carefully. I teach them to look at me, especially when I'm demonstrating a new technique. Many students are likewise uncomfortable asking questions at first, but it can help if I encourage them to speak up if they don't understand.
In addition to teaching active listening techniques, I also try to model them with my students. I give them my full attention when they are playing or talking, and try to ask thoughtful questions about their performances. In my own practice, I've been using active listening when I'm working on new music. I take out my part or a score, and listen to a recording of the piece I'm working on. I try to stay completely focused on listening and engaging with the music. It helps me to hear how my part interacts with the rest of the symphony, and sharpens my aural skills.