-But it has to look like a toy right? ( I mean shading wise)
-So it has to stay in the real? ( no aliens kicking earth around ...)
Has to be a real toy yes. You could try for photorealism or go for a more toon shader style, we leave that to you.
-So basically toy refers to toy as in the model not the topic/keyword ,so you can make a lego castle, but not a baby sitting in the middle of a city playing with skyscrapers as if it were his boxes to play with?
A Lego castle would be fine if Lego is your favorite toy form childhood then just modeling a Lego brick would be pretty boring 
And yes it's an actual toy we want.
Dave
From a readers' Q and A column in TV GUIDE: "If we get involved in a nuclear war, would the electromagnetic pulses from exploding bombs damage my videotapes?"