Nut-job Lego-loving parent here. Ignore my star rating. I don't get free Lego for these reviews...
Lego's Duplo trains are great. They are big enough that little kids can manipulate them easily. Since they are made of blocks, kids can create their own engine and car designs AND use the same blocks to build towns, etc. We have lots of different trains in our house and I can tell you that the Duplo trains have been the most flexible and long-lived for the early age bracket. Duplo has an earlier age-safety limit (2 years) versus many of the wooden trains (that start at 3), yet the building flexibility of Lego means that the system remains interesting even as kids move out of the recommended age range.
This train features number blocks (in ROYGBIV order), a simple steam engine, a single Duplo boy-figure and a dog. The cars connect to each other with simple hitches. Lego uses the same hitches for its Duplo trucks and tractors, so these cars can do double duty. One caveat about this train is that it uses the wide train wheels. These are very durable, but if you were thinking of purchasing track and building out a Duplo train set, these wheels are wider than Duplo's proper train wheels. These operate okay on straights and curves, but they are too wide for Duplo switches, bridges, and level crossings.
In August 2013, Lego releases two new Duplo train sets: 10508 Deluxe Trains Set (a motorized engine, two freight cars, a bridge and figure-8 of track for $110) and 10507 My First Trains Set (a motorized steam-train with one passenger car and a circle of track for $45). While I very much like these larger sets, the Number Train is hard to beat at $20.