Scent work is great entertainment for both owner and dog. This video demonstrates using a treat and a cloth the progressing to a teabag and a cloth.
Considering that 30% of the dogs brain is wired for smell this is very fun for the dog and is a great rainy day activity that will tire your dog out.

Luna tends to "indicate" with pressing her nose on the object or picking it up with her teeth. You need to watch your dog carefully. Since you know where the hidden item is, you should be able to notice some particular body motion the dog makes when she "gets the scent"