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It shouldn't take a lot of explanation to say "I cut up some wood into blocks for my son to play with". I learned however, that a bit of forethought should pay off with a super set of blocks.
My inspiration came from an article in the March 1996 issue of "Canadian Workshop", pg45, by Gary Walchuk. (Canadian Home Workshop Magazine is on the web, but the article I referred to is unfortunately not among their web pages at this time.) If you can find it, I would encourage you to locate that article for full details, including some simple plans for various block shapes. They also include a full discussion on saftey concerns.
The key idea, is to make all the blocks a multiple of the same size, so that they all interlock, and stack together nicely. What that size is, is up to you. I went with the suggestion in the article and made all the blocks a multiple of 1.25 inches. All of the blocks are 1.25" thick, and then they varied in length and width. Some were 2.5x5", some were 1.25x5", a few were even 1.25x10". Use your imagination. A few of the 2.5x2.5", and 2.5x5" blocks were cut on the diagonal to make some triangular blocks that would also stack well with the set.
While I was working on this project, I cut up one piece of scrap to be a perfect cube: 1.25"x1.25"x1.25". Instantly I realized why a piece like this had not been among the plans in the magazine article, as it was far too close to a choke-able size for comfort. The small cube went back into the scrap bin and I stuck with the larger sized blocks.
My son is only 7 months old, so for now I just made up a starter set of about 25 blocks. I expect to add more blocks to the set as time goes on. I don't (yet) have a drill press or a bandsaw, but when I do gain access to them I'll see about making some curved and arched blocks to go with the set. A few sections of 1.25" diameter dowel would also be in order.
I used an 8 foot 2x4 of knotty pine (cutting out the worst of the knots) to make the blocks. The resulting blocks (even the largest 10" long pieces) are nice and light. I sanded them smooth, paying particular attention to smoothing over any sharp corners or points.