A few months ago, I built my son a city for playing with his cars and train, and I promised a few friends I'd show them pictures. Why not share them here.
I bought two square 48" ply wood sheets, which I cut to about 40" to fit in the room. I cut two sets of legs, of different heights, to create a two-level city. I made sure their difference was exactly the height of his train's bridging system. I also bought enough artificial grass to cover the two sheets. I stapled it on the surface and simply cut roads directly on it, adding a few more staples here and there.
Before cutting the roads, I planed the train and garage positions as much as I could, but one word of advise: don't try to get a perfect circuit right from the start. First, you'l make adjustments based on how your child likes or don't likes things. Second, there are good chances he/she will want to tear appart the train design often.
My first attempt in creating a ramp between the levels was made with paperboard, but the second was made with some artificial grass leftovers, which I simply staped upside-down. This is much better and resistant.
Finally, I bought an 1/8" diameter wood pole, and printed a sheet of road signs I easily found on the net. Well, I needed specific Quebec signs, so I searched each sign one by one and made my own sheet. I cut and glued the signs on 2" pole sections, and simply drilled 1/8" holes in the table where I wanted to fit the road signs. They fit perfectly.