There's a lot written about gauge and tension in relation to knitting which can be quite intimidating to the beginner knitter. Where toys are concerned, the good news is, you don't have to worry too much about gauge and tension except where you want something to be a specific size.
Generally, for toys the most important consideration is to prevent the stuffing from coming out or showing through the knitting. Using a needle size smaller than the one recommended for the size of yarn is the most popular way to achieve a closer knit fabric. There are other factors which can influence the end result of a piece of knitted fabric, for example, how tightly a person holds the yarn, how a person holds their needles and the type of material the needles are made from eg. metal, bamboo, wood, plastic.
For this experiment I used Naturals Organic Cotton double knitting by Stylecraft who kindly sent me samples. The cotton is washable, has a lovely bounce to it when knitted up and there are 38 gorgeous shades. I particularly love the pretty sample colours and how they worked together: Rosewood (purple), Sage (pale blue) and Bone (white). (The embroidery on the houses is the same yarn and gives a hint of the other lovely shades in the range).
I used my pattern Mini Red Roof Croft House and chose three smaller size needles than the 4mm recommended on the yarn ball band.
For each main house colour (seen on the walls) a swatch was made in stocking stitch and the number of stitches and rows were counted.
House Number One...
Even though I'd used a 3.25mm needle the gauge was very similar to the one recommended on the ball band. So the way I knit was influencing the end result. That said the fabric created was great for my toy. I could see a tiny bit of the filling through the garter stitch roof but none through the stocking stitch sections. (Gauge was 22st and 34 rows over 10 cm). House approximately 13 cm wide x 10 cm high.
House number Two...
This was knitted with 3mm needles and turned out slightly smaller than the first (purple) house. (Gauge was 23 stitches and 36 rows). House size approximately 11.5 cm wide x 9 cm high.
House Number 3...
The third house was completed with 2.75mm needles, the result being definitely smaller than my first (purple) house. The white house has the tightest fabric and had the best surface for sewing the embroidered flowers on the front. Finished house size 10 cm x 8 cm.
The size of each house reduced by about 1cm in hight and width each time the needle went down a size.
In summary, a tight fabric is good for toy making. Experiment yourself with a smaller needle size to see how that affects the end result.
Enjoy your knitted toy making!