A matchstick is a small wooden stick. Imagine a match (like what you would use to light up a cigarette) without the phosphorus tip. Craft is a manual creative activity. “Arts and crafts” is a generic term for artistic manual work, building models of planes, ships, trains, or houses, would fall under this category, as well as painting or decorating those models. So basically they’re building a small model of a house out of small sticks.