It depends how you want to use the space. Two tall bookshelves would be great if you have books and objects to style with. If you entertain frequently, a bar cart on one side with a low bookcase on the other would be fun! You can add art or mirrors above. See below for inspiration images. Good luck!

I would consider removing the huge ottoman if you feel the sectional feels too large. However, if it is for kids then it will probably be something that is used often. It is hard to give decorating advice given that all of the kids will be using it and you want it to be comfy. I would add a rug, something with color would help ground the space and make the space feel cozy. Also a couple of throw blankets would look nice and get plenty of use. I think throw pillows would not be a terrible idea given that some ppl would like to lay down and have one for his/her head. You could even put a large basket nearby the sofa to hold them when necessary. A cool large framed poster of something everyone loves (a sports team or band or whatever) would look great on the wall in the empty space to the right of the sofa and left of the window on that wall. If you do not need the cedar chest, I would remove it for more space and open feel. Do you like the wall color? Usually light blues bother me but I think it looks nice. If not, then are you looking for something warmer and cozier? If so, then a nice warm khaki color would look nice. You might want something brighter?

Space is difficult to get a feel for. Is the second pic stretched? The room looks to be long and thin. I agree the only proper place for the TV is where the mirror is. The sectional would then need to come forward several feet. That will block the walk way so in my world the sectional doesn't fit. That pole is very unfortunate but with the stair case removing the railing is not going to achieve what you want. The stairs into the home and the placement of the fireplace, well you have two rooms not one in that area. You just re-did the fireplace? I think I would have removed it. It makes much more sense for the sectional and fireplace to swap places., but that isn't possible. Removing the railing, getting smaller furniture you can arrange around the room, you might be able to arrange a room around the pole as if the pole were a tall floor lamp. Still the part of the room under on the other side of the railing will never orientate to the fireplace or the TV, due to the staircase. That pole is where a walk way always will have to remain due to the stairs jutting into the room. I agree with the above, make the lower part of the room a dining room. That has to be why the railing is there to mark where the dining room begins.

First choice would be adding an overmantle piece to the fireplace so the tv doesn’t look like it was an after thought. Second choice would be a larger tv to help fill up the space and get one that displays artwork in sleep mode. As far as toy storage, you may be able to have two square storage ottomans for toy storage.