Early childhood teachers, how do you handle the different levels of development in your classroom?

I'm in school to be a teacher right now and learning about differentiation. I'm not even student teaching any time soon, but I am freaking out a bit about lesson planning. One of the kindergarten classrooms that I tutor in has some students still making letter-sound associations and some that are already writing full, relatively complex sentences.

Do you differentiate every assignment lesson?

How do you differentiate assignments so that you don't out and out give a different assignment to the students?

Basically, how do you do you manage the different needs of each student?