Perhaps Kay didn't know, on her own, that Michael had Fredo killed--she tells him, "Tony knows that you had Fredo killed [emphasis added]." As we saw, Connie at the last minute pulled Tony off the boat with Fredo and Neri, saying that Michael wanted Tony to go with him. But Michael didn't go anywhere--and neither did Tony. Michael heard the shot that Neri fired, so Tony must have heard it too. So, Tony must have concluded, after Fredo failed to turn up, that his father had Fredo killed. And he asked, or told, his mother.
Tony was in Reno with Connie when Fredo got offed. I also don't think at age 8 Tony had any concept that dad could have Uncle Fredo killed. He might come to believe it years later, but not at age 8.
Another possibility that Enzo raises: Connie and Kay still seemed tight. Maybe Connie became distraught after Fredo went missing and blamed Michael, as she did when Carlo went missing in GF. And she confided in Kay. OK, Connie seemed to have rationalized it by III, but before then...?
Connie has had the tearful boathouse meeting with Michael where she swears lifelong allegiance to him. Right up on the top of the allegiance list would be to NOT be a back-door conduit for information to Kay. (See the legal discussion in my post above).
IMO by the end of GF II, Connie was perfectly fine with Michael having had Carlo smoked. Remember, Connie was the baby sister of the family, and Sonny was very protective of her -- Connie idolized Sonny as well as Vito. Once Connie realized that Carlo's betrayal had resulted in Sonny's killing (and had also endangered Vito as well as the whole family), she would have been just fine with it. Considering also that Carlo repeatedly beat the crap out of her I suspect she would have moved out of the 'mourning widow' stage very very quickly.
Most logical explanation: directoral license. Lake Tahoe is very deep. In order to make Fredo's body disappear, Neri would have to have gone fairly far out on the lake--too far for anyone on shore to have heard the shot. FFC needed drama for that last scene--and he needed drama for Kay's confrontation with Michael in III.
Yep, directorial license does explain much of it.
To really explain it further: Neri could have killed Fredo out in the boat, then come back in to shore and picked up some concrete blocks or other weights to sink the body, then gone out again all the way to the center of the lake (1600 feet deep).
You sink a body in 1600 feet of water, it ain't coming up. It's also not very likely the police would have the wherewithal to 'drag' the bottom of the lake.
I have another possibility:
One of Kay's issues with having Anthony raised on the compound was the company he kept. "Anthony's friends are your button men!"
Maybe one of Anthony's loose-lipped "friends" let something slip and Anthony figured things out (and told Kay).
I pretty much doubt that. First off, the lower-level button men might not even know for a fact that Michael had had Fredo whacked -- that's probably info which would have been given out on a 'need-to-know' basis.
And those who DID know would probably have also known that the details of Fredo's death would be one of the utterly off-limits topics to the kids.
