Yeah, that's the general idea.
The reed switch is simply a toggle switch, generally single-pole, single-throw. A "latching" switch will stay the way you put it. A non-latching switch will revert to the OFF position once the magnetic field is removed.
It takes an iron man to play with a toy iron horse.
I covered the various options to turn LEDs on and off (including latching reed switches) in an article I wrote last year.
Have a look
http://www.trainelectronics.com/LED_Articles_2007/LED_103/index.htm
Let me know if you have any questions.
dave