Ryan Coleman writes in:
Along the same lines of the Model Railroad club — many of these groups create modular layouts out of 2′ x 4′ tabletops that are all built to specific standards. [Which you then link together.] The nice thing is you and the kids can work on the modules in your basement etc. and then get a “big layout” experience by taking your modules to the train shows etc. as part of the larger group.
Len Kaplan adds:
If you want some real inspiration for what can be done with model railroads in VERY small places, check out Carl Arendt’s Micro/Small website:
Here is shoebox layout: