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:
Multiplayer games in Game Center,
Adding friends in Game Center.
In addition, you can choose to prevent access to specific content types:
Music and podcasts,
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.