Felginator,
Welcome! You're a man after my heart! I've had the old-school Lionel bug for a year or so, and have been working my way backwards in time. Started with a 1958 set passed down through my family. Then, I picked up a nice 221 like yours ... it had been repainted black, and I used Woodland Scenics #MG712 silver dry-rub decals to redo the #221 number tags on the cab. Looks great.
This thread looks under the hood of a 221:
http://www.modeltrainforum.com/showthread.php?t=3483
Since then (as encouraged by T-Man and Stillakid, above), I've gotten heavily into the prewar tinplate restoration ... full strip and repaint jobs. I have some threads here on the forum that you might want to look at ... to get a sense at the level of work involved.
http://www.modeltrainforum.com/showthread.php?t=3847
http://www.modeltrainforum.com/showthread.php?t=3748
http://www.modeltrainforum.com/showthread.php?t=3571
In your case, I'd encourage you to take small steps as you develop your skill level. The comments above to focus on cleaning, lubrication, etc. are good ones. If you want to tackle some repaint work, the roofs on the passenger cars is a good place to start. They are easily removed.
Many guys (myself included) strip off old paint by soaking the parts in a spray-bath of Easy Off Oven Cleaner ... the strong stuff, not the scent-free stuff. A tin tray (like a throw-away lasagna pan) covered in aluminum foil works well. The Easy Off might eat through the bottom of the tray, so you might want to double up, and let it sit outside for a few hours.
After that, and a soapy water bath on the stripped parts, a Dremel with a stainless steel wire brush is your best friend. Use that to remove any "spider web" veins of rust, and give the now-bare metal a nice, polishy look.
Wipe down with denatured alcohol, and spray with a primer. I use Krylon "rudy brown", mostly. when the primer dries, give it a very soft rub with a green (fine) Scotch Brite pad to smooth the finish just a bit. Another wipe down with a clean cloth, then your topcoat spray. You should stick with primer/paint mfrs ... i.e., Krylon for both or Rustoleum for both.
If you opt to strip and repaint the loco or the cars at some point, all of the trim and metal parts should be removed. You'll get familiar with working carefully with the little metal tabs. Go carefully, and bend them only as much as is needed to remove what you're trying to.
The trucks (wheelsets) on the cars will likely be rivetted to the frames. You can drill those out and use screws with locknuts to reinstall.
Check through the Woodland Scenics dry rub decal inventory to see if you can find a good match to the size/font of the lettering on the cars. In my opinion, these dry rub numbers offer a much more pleasing result than the typical wet transfer decals, which always have that clear film overlay.
Be patient, and have fun. Don't set an unrealistic deadline. This type of work takes time. If Christmas is key, focus on cleaning and lubing, and maybe strip/respray work on the car roofs, only.
Good luck!
TJ
PS --
Many dealers offer replacement parts for old Lionel trains. I've had great success with Jeff Kane at
www.ttender.com .