There are five challenges in this level, 4 of them with multiple solutions. I'm using the final hints from the game as solutions as they are quite good when it comes to the description required.
The first challenge is to Free The Kids: simply stack into the dog feeding machine and pedal the machine to feed the dog. Stack into the dog to unlock the cage and free the kids. This is related to the story and cannot be missed as there is only one solution.
The second challenge is to Defeat Sickle the Sly:
1)Use the fire chief to make guard wet, then quickly use Hans to blow cold air on the guard.
2)Use Sir Sully to infect a smaller doll and take the smaller doll near Sickle.
3)Take soup bowl child up to the pigeon car and then serve the soup to the guard.
4Use Sir Sully to sneeze on a soup bowl child and then serve the soup to the guard.
The third challenge is to Tickle Tiberius the Terrible
1)Use the french maid to dust the guard's head.
2)Use a soup boy to attract a pigeon near Tiberius the Terrible, then use the pigeon onto his head.
3)Use the tailor to remove the Tiberius the Terrible's armor and then use Gilliam to hug him.
The fourth is to Illuminate the Shadow General
1)Use the lighter doll's flare ability and then flatulate or spill oil on him
2)Use Jasper to turn the gas main on and the lighter doll to light the pilot light.
3) Serve money into the coin slot and then use the Carbon Footprint ability on the pad.
The fifth and final challenge is to Scare Simpleton the Strong
1)Use the spy to put a mask on a big doll and then approach the guard
2)Use Sheet kids to put a sheet on a small doll and then show the guard.
3)Use a hammer or toilet kid to annoy two adults to release the clown and then use him to scare the guard. (the clown is located earlier in the level inside of the second passenger car. He is inside the Jack in the Box. Make the man guarding it mad by hitting him with a hammer to get Peck the clown to come out)
Hope this helps.