Here's some more details. 1. 놀잇거리 comes from 놀이(play, game) + 거리 (stuff / material for some purpose). So it becomes "something to play with", "something to have fun with". Similarly, 일(work)+거리 would make 일거리, , which means either "work to do", or "livelihood". 2. 낙방하다 as you jay means "fail at a test or other screening". As mentioned it sounds old because it originates from the practice in the Chosun dynasty. More commonly 불합격하다 is used in formal context, and 떨어지다 (from "fall down") in less formal cases. 실패하다 on the other hand is a widely used word to mean "fail" in general.

1. I think the closest word you can translate 놀잇거리 into English would be "something to play with" or "something fun to do" 2. Yes, you are understandng the phrase correctly. : ) Although it sounds a bit old or uncommon(even though it is commonly used in formal letters or books) to say irl