Theory:

Where they harness the swift reindeer
To the sledges, when it snows;
And the children look like bear’s cubs
In their funny, furry clothes:

They tell them a curious story —
I don’t believe ’tis true;
And yet you may learn a lesson
If I tell the tale to you.
Explanation:
 
The speaker further describes the winters in the Northland in the second stanza. She says that the reindeer are harnessed to the sledges when the lands are filled with snow.
 
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A sledge

Reindeer is a strong animal that can pull sleighs weighing \(140\) kg for several hours across frozen ground or snow at speeds of nine or \(10\) kilometres per hour. It is also one of the oldest modes of transport for the indigenous people of Norway. Hence, reindeer and the sledge hold an important place in the culture and history of the Northland.
 
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A reindeer
 
So, while the adults are getting their sledges ready, the kids beat the cold by wearing warm clothes.
 
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A kid in his winter wear
 
The speaker here compares the kids to bear's cubs as they appear in funny looking furry clothes.
 
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The speaker compares the kids to bear's cubs

So, to keep the kids engaged, the adults tell them a story. The speaker observes that the story seem too far fetched to be true.  However, it is not void of a moral. The narrative, though it is quite unbelievable, can teach us a lesson or two.
 
Meanings of difficult words:
 
S.No
Words
Meanings
1
HarnessA piece of equipment with straps and belts, used to control or hold in place a person, animal, or object
2
SwiftHappening quickly or promptly
3
ReindeerA type of deer with large horns that lives in the northern parts of Europe, Asia, and North America
4
SledgeA vehicle used for travelling over snow and ice with long, narrow strips of wood or metal under it instead of wheels, often pulled by animals
5
CubA young lion, bear, wolf, etc.
6
FurryOf, relating to, or resembling fur
7
’Tis(Short form of) it is
Reference:
National Council of Educational Research and Training (2006). Beehive. A Legend of the Northland - Phoebe Cary (pp. 65 - 67). Published at the Publication Division by the Secretary, National Council of Educational Research and Training, Sri Aurobindo Marg, New Delhi.