A simple, "Well, honey, your principal was reminding your teacher about something. Don't worry about it." probably would have gone a long way to calm the kids' "terror".
-Agreed. The principle did take it a little to far by pretending to shoot the teacher in front of the kids. This poor decision should not cost him his job, though. Had he pretended to shoot some of the children, the parents could have a case against him, and could make an attempt to get him fired. I'm not so sure about how traumatized the children were. I work around children and it is amazing how violent some of their games are.