Well first (and I know this is obvious) try to avoid the lines whenever possible. By using Fastpass and EMH or being at the parks when they open you can minimize the time you spend in line. It's amazing what a difference even a couple of hours can make in the crowd levels each day, so try to get to the parks early.
For my family, I Spy worked wonderfully. Especially with all the theming of some of the lines, there's plenty to see and talk about. Pointing out the details or playing I Spy was enough to keep our son occupied most of the time. They also have books and websites devoted to Hidden Mickeys, and some of those are visible from the lines. They can be really fun to search for.
Also when you're trapped in line is a good time to talk about your trip - What was your favorite thing so far? Why? What do you want to do next? Talk about your plans for the rest of the day, talk about what to expect on the ride you're in line for. . . that sort of thing.
When my son was small we didn't really take things for him to play with in line, but he did have a toy camera he enjoyed using in the parks. As he got older he got a kid's camera that he loved taking pictures with.
It's also a fun time to scroll back through the pictures on your camera to let the kids look at them, if you have a digital one with a display.
(And just because someone usually suggests them in a thread like this. . . please don't bring bubbles to use in line. They get on glasses and camera lenses and can stain some clothing, and apparently some people are even allergic to them. Plus they actually make some kids more keyed up since they float all over the place and kids want to chase them, which they can't do while they are stuck in line.)