One way to get an illusion of a larger mill than you have room for is to do the mill as a flat along the backdrop. one of the best I have seen is used on the front page of the Yahoo model loggers group
http://groups.yahoo.com/group/modelloggers/
this is a decent forum, as is the 4L group @ Yahoo. I much prefer the format here at Zealot, as over in the Yahoo sites, text is seperated from photos, so the kind of step by step text with photos for illustration is not possible over there.
With a mill's interface with a railroad, you have two main areas of interest, the log dump, and the lumber loading docks. In model railroads, often the emphasis is on the log dump, and the lumber loading ins minimized or even ignored. If you are modeling a log hauler < all you need is a log dump, a lumber loading operation will take more space. My RR is a Log and lumber hauler, so I have to model both. If you check out my thread, and DR. Tom's old C&S thread, you will see a lot of ideas, and get some feel for the other operations needed to support a logging operation (moving crews, supplies, machinery (animals, on earlier or more primitive operations), stuff that makes operations of a woods railroad much more interesting and more complex than they might otherwise seem.
Good luck, if you read through My DG CC & W RR thread, Dr. Tom's C&S thread, and the Bill and Tom's excellent adventure ( our club projects) you will be exposed to many years worth of information, some of it may be helpful. look through that stuff, we will be happy to help with specifics as you run into them.
You seem to have a time period, do you have a location, Tom and I do Eastern TN. most folks do west cost, which is easier, as the operations were generally later and better documented. It really helps if you can select one or two actual operations to use for inspiration, then you can use photos of a particular mill as inspiration. My mill was inspired by three or four, and as a result is somewhat of a mess. It looks good enough that no one notices, but I have used some elements of a single band sawmill design, and others from a double band saw mill, and I left out an important feature, a saw filling platform in the roof, so taking your inspiration from one mill will make sense, but you want to make that mill compatible with a time and place that fits your railroads theme.
Bill Nelson