I remember there being this boy who... goes to this weirdo place. And there's a castle I think, and there's this old guy. And he goes on the fake toy train and rides it through the castle. And near the end of the movie there's a hot air balloon show thingie on the boy's street and he goes outside. There was also this weird black sludgey jelly like stuff that.. . drowned everyone or something.

It was also animated.

... I barely remember it.
And I really want to watch it.
(I'm hoping this wasn't a dream of mine.)

It's "Little Nemo: Adventures in Slumberland" (1989)

Haha it made me think of the original charlie and the choc. Factory... but that's not it.