If you need only to know about location at critical points, then you could use IR-emitters at various locations around the track and an IR-receiver on the train.The emitters can be hidden in the scenery rather easily and their field of view limited. Precision location near an emitter could be by placing a super magnet under the track for a few millimeters location info. For example, a train station would have an emitter at each end and a stopping point at one end have a North-up magnet and the other a South-up magnet, so the train coming North would get the South-end emitter to know to slow down and then creep to get the North-up magnet to align with the platform; the other direction would be the opposite. In between the train can count wheel turns to get an approximate value and resync on IR emitters or magnets.
The emitters can broadcast codes to identify them individually, such as is done with TV remotes. Groups of emitters can be controlled by ESP devices.
Typical trains and model trains are followed via blocks; no train can enter another block that is occupied and the train is considered to occupy the entire block.
Also in real life, US train cars are individually followed using barcodes on the cars. The rule for vandals and graffiti artists is "leave the barcode alone and we won't hunt you down and put you in prison."