Last December we spent a few days at the Nurnberg Christmas Market, which is considered to be one of the best in Europe. It is ~4 hour train or car ride away from Zurich. The market itself was excellent and since we went during the week we were able to avoid the heavier crowds. The great thing about this particular Christmas market is the Kinderweihnacht especially for children.
They have a carousel, small ferris wheel, and a train for children to ride (5 Euro for 5 tickets). There is also a model railway set up on display. Those activities were enough to keep my 2.5 year old entertained for the whole evening. For older kids they have “hands on” stalls where kids can help bake Christmas cookies, make candles, write letters to the Christ Child, or visit St. Nick. They also have a heated playmobil activity center. The rides are all outside, but the rest of the acitivites are in enclosed stalls. The activities, with the exception of the rides, were free of charge and you do not have to register in advance.
Check the website for opening days and and for more details about the Children’s market.