How do I add a light to the Red Cargo Train?
These light fit in a regular Technic hole, and thus have the same diameter as a stud.

I would recommend fitting them in the so-called "Erling" brick; after all, one of its regular (aka "boring") names is "Brick, 1 x 1 with headlight":

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The only problem you'll have is that the light extends quite a bit at the back, but you can easily solve that by using a panel of some sort, for example: