You can't generally password protect specific apps without some jailbreaking I assume, but you can restrict certain things, a few of which I recommend if you are giving it to a young one.
http://support.apple.com/kb/ht4213 Describes the restrictions process, and it lists
You can choose to restrict access to the following applications and features on the device:
Safari,
YouTube,
iTunes,
Ping,
App installation,
App deletion,
Camera,
FaceTime,
Location,
Account changes,
Multiplayer games in Game Center,
Adding friends in Game Center.
In addition, you can choose to prevent access to specific content types:
In-app purchases,
Music and podcasts,
Movies,
TV shows,
Apps.
You can also set iTunes restrictions for content via http://support.apple.com/kb/ht1904, but again, this isn't device specific at the time, it is when you are buying or downloading content from the internet.
Best Answer
The camera app that comes with all iOS devices with cameras can magnify images.
If you want a live preview, you can also use accessibility on the iPad to zoom the display in many, many ways, as documented by this article by Apple on the accessibility features that iOS includes.
You probably don't need to invest in any third party apps until you've exhausted all of the built in capabilities of iOS and the associated hardware.