"Forever" is a frightening concept for anyone. We want to know that everything will be OK, and death makes things profoundly not OK. We need to understand that death is a natural part of life — that everyone dies. Death is not punishment, but part of the way God created the world.
Very young children can't fully understand these concepts, but in time, as long as they feel confident of your love, they'll grasp the ultimate decree of our finitude. I suspect your grandson is more afraid of death than hell. Hell just intensifies his fear because he's begun to imagine there's something even worse than death that comes after we die.
I think your loving response to him was perfect. You calmed him without painting a vision of death that's naive and false to the facts of our lives.