Nathan Radley, who quotes Scripture as though it were a textbook, is a Fundamentalist. As such his thinking in other areas of life lack as much expansiveness as his interpretation of the Bible. He is pragmatic without being the least bit imaginative. So, he tells the children the practical reason without divulging the implications of his act.
In the Radley household, there is an isolationism that separates its inmates from the rest of Maycomb. Mr. Radley, a fundamentalist who had no flexibility, did not know how to deal with his son Boo when he was younger. So, he confined and restricted Boo, believing. as Robert Frost's speaker in one poem declares, "Good fences make good neighbors." Nathan Radley perpetuates this conviction. There is no communication with other citizens of Maycomb, for communication can present problems that remaining isolated avoids.
The previous post gave a good explanation to your question concerning why Nathan Radley plugged the knothole in the tree. It is true that he did not want to give Jem the real reason for plugging the hole, so he claimed that it was a dying tree and "you plug 'em... when they're sick." It may be true, as the previous post speculates, that Nathan was trying to deprive Boo of the pleasure he received from giving the gifts. However, I think his primary reason was to prevent any kind of contact between Boo and the children--not for selfish reasons, but to keep Boo from getting into any more trouble with his neighbors. To Nathan's way of thinking, Boo's mental state was such that he could have caused harm to the children if closer contact was made. By sealing the knothole, this link of communication was broken.
Mr. Nathan Radley was making an excuse for plugging the hole with cement, when he really plugged the hole because he didn't appriciate that Boo was finding pleasure in giving Scout and Jem little gifts. Mr. Radley is a "foot washing Baptist", and believes that any pleasure is a sin. He wanted to make an excuse that the children wouldn't suspect anything of. Atticus looks at the tree, and doesn't think there's anything wrong with it, because its leaves are in full bloom, and are green.
The tree was not dying but in fact he wanted Boo to stop having contact with the children. Boo is a recluse man and the only way he had contact with the children that made him more of a person was through the hole in the tree. However, Nathan closed it up in order to stop this communication.