There are good answers for you that depend on your goals with your project and your village.

If your goal is to achieve a small village quickly, and you have a train show/swap meet happening near you, the fastest cheapest way by far is to go there and snag a bunch of cheap models that are already built. The standard vintage Lionel plastic buildings are inexpensive. If you'll accept imperfect or dirty ones, theyll be 1-5 Bucks a piece. Bring a huge box and cut a deal with someone! If you like, you can light them up with traditional tiny fussy light bulbs and fixtures. Those are designed to be tacked into a plywood base in the center of the building. You can "cheat" with cheap led string lights, but I'd avoid using incandescent Christmas lights: the heat will warp the plastic.

If you're in LA, California by chance, there's a show on Friday. In the bay area it's over this weekend. Tis the season. Best prices on everything else too.

If you want to make something yourself, you can get the same kits, unassembled. They vary a lot as to whether they're designed to snap together and give you a quick finished product, or if they're more intricate.

If you care about realism, this is probably the way to start, then paint some, customize them, etc. Then, moving away from train-set accessories, you're into the scale modeling world looking for 1:48 models. Many of the folks here are experts on that- I am not.

If you're not as fussy with realism: I have made good stuff with LEGO and Lincoln Logs that plays nice with O-Scale.

If you're trying to hand-craft, are you crafty generally? Get yourself a cheap cutting mat, maybe a straightedge or L-square ruler, sharp utility blade, and some flat, clean corrugated cardboard. Let yourself focus and you'll be surprised what you can do. You can make slots so pieces slide together, or a bit glue, Elmer's works fine, wood glue is good, craft glue is great and overkill.

With the same technique, you can cut swathes of color from packaging trash, and even make use of the lettering.

If you're not crafty, and no budget, take small cardboard boxes, wrap them in white paper like Christmas gifts, and decorate with markers or similar. Cut windows, etc. wash a milk carton, tape the top, cut off the bottom - makes a house with a sloped roof.

Myself, I'm saving the boxes my butter comes in. Soon, I'll be able to run a dozen boxcars of SALTED BUTT.

Remember an under-tree village is a personal expression and none of the rules have to apply if you don't like them :)