A lovely addition to the historical Roundhouse, located just south of the Skydome, the Toronto Railway Heritage Centre opened to the public in late May 2010. It is open free to the public, but donations are accepted and encouraged.
The TRHC itself has several trains set out in the open and within the Roundhouse. You can wander in and check out an old caboose or even play on a train simulator. Sit in the driver's seat and steer the train while watching a computer screen as you imagine yourself in downtown Toronto of the 1950s. Go early in the day to avoid line-ups. Note that these trains are NOT wheelchair accessible.
In the summer, a miniature train pulls a dozen people around on miniature tracks. Mostly geared towards children, rides are $3 for adults, and $2 for kids.
Parking underground for the Metro Convention Centre is a bit pricey, but worth it for the photo ops and the handful of geocaches in this area - one which is actually physically attached to the Roundhouse itself. It's also very central and only a 10-minute walk from Harbourfront and Queen's Quay.
A great place to pick up a little history lesson, and possible a beer at the Steamwhistle Brewery next door!