Atticus doesn't overreact. He questions them, taking the sissors away. His authoritative actions --rolling up a newspaper and smacking it against himself-- demonstrates to the the children that he knows what is going on and he is disappointed in them. Of course, he knows more than the children do; he knows they are struggling to grow up, trying to understand the Boo Radley's of the world and themselves amd where they fit it. Atticus's reaction shows how wise and understanding he is. It shows that he realizes how children learn about the world--through immitating others and through testing their own courage by confronting things or people they are afraid of--and he knows the difficult situation his children are in. Their father does not act prejudicial like the other citizens do, so his children are a little more confused about how to treat Boo Radley as a result. Maybe seeing them enact the game gave him the resolve to represent Tom Robinson, a black man, to stand up for what he believes, to show hs children that he practices what he preaches.
When Atticus sees the scissors in Jem's hands, he has a pretty good idea that the children's play acting has to do with the Radleys. Atticus had previously warned the children about bothering his reclusive neighbors when old Mr. Radley was sick. He warned them again when Jem denied their melodrama had anything to do with Boo.
"I hope it doesn't," he said shortly...
Oddly, Atticus threatens to "tan" them if they have cut up the day's newspaper (though Atticus has never spanked his children), but his serious tone convinced the threesome to cancel the remaining performances. Scout believes that Atticus has already caught on.
"Jem," I said. "I think Atticus knows it anyway."
The kids eventually "slowed down the game for a while," although Atticus would later put his foot down about the kids "tormenting" the Radleys. Atticus shows patience and understanding with Jem and Scout, and he trusts they will obey him, even though Jem reminds Scout, "Atticus didn't say we couldn't."