Appearance:

The Rod of the Quockerwodger is a three foot long rod made of wood, capped with a luminous sphere that is constantly swirling with turquoise and magenta hues. 

Power:

The Rod of the Quockerwodger has the ability to turn anything into a toy. Inanimate objects are reduced to one ninth of their original size and rarely more than a pound in weight. Inanimate objects reduced thus will remain this way unless subjected to anti-magic, enlarge object, or similar remove curse magic. The general limit of the power is any freestanding object less than 10 x 10 feet in dimension. It can toy-ify a carriage or furniture, but things like a house or castle are beyond the power of the rod. 

Animals can be turned into toys as well, and reduce to one ninth in size and seldom more than a pound in mass. A normal sized horse reduces to less than a foot long, dogs reduce to 2-3 inches long, and small animals like cats become just an inch long. 

Sentient beings can be turned into toys if they fail a wisdom/resist magic check. A normal sized human turns into an eight inch doll.

Once turned into inanimate toys, the victims of the rod are effectively frozen. They are distantly aware of what happens around them, but they do not age, do not breathe, and do not eat, drink, or anything else. This applies to animals and sentient beings. If they are damaged as toys, if something undoes the magic, they will return to their normal form, unharmed. If they are destroyed while in toy form, they are destroyed and dead, and can only be brought back by a limited wish or similar high level restoration spell.

Monsters can also be turned into toys, though they get a similar chance to resist.

Limitations

The Rod of the Quockerwodger uses the magic potential of the user to power it. If overused, the user can suffer magic fatigue and pass out. 

The magic of the rod is relatively easily undone. Remove curse, enlarge, and dispel magic will all return the victims to normal.

Usage

The Rod of the Quockerwodger was originally created for a very spoiled princess, who used it to turn quite a few horses, ponies, and other such animals into toys that she played with relentlessly. Eventually she started using the rod on household staff and stable hands who displeased her. Rather than being angry, the royal family was delighted as they could use the rod to turn undesirables into toys, rather than jailing or executing them. 

Eventually more rods were created, and slowly distributed. These found their way to collectors, and hoarders, who started turning monsters and creatures into collectibles, decorations, and then into bragging trophies. A few made it into the hands of unscrupulous entrepreneurs, who started stalking demihumans, monsters, and other interesting figures to make them into toys and selling them. 

Some children have toys that have been passed down from generation to generation, not knowing that their toy dragon

is a real dragon.

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The PC's enter a toy shop...

This spoiled rich girl demands a new doll several times a year.  The PC's retrieve X, its a rare animal.  Acquiring it cost them dearly, they were paid the service.  They find out later that the stuffed animal (its not) that the spoiled rich girl has in her hands...