
Märklin chose Code 60 for their Z scale sectional track. There's no knowing why this size was selected, but an educated guess would be that it was the smallest rail size with which they could work back in the 1970s when they introduced Z scale to the world. Today, Code 55 seems to be the new practical limit (now widely available in N scale), and Micro-Trains chose this for their new line of Z scale roadbed sectional track.
Having worked with rail sizes from 80 down to 40 and below over the years, I can fully appreciate why Code 55 is the lower limit for most manufacturers. While it might be possible for them to go smaller, it would undoubtedly start jacking up the price to the extent that it'd be pointless to even try. A few entrepreneurs have stepped into the picture, offering custom-made Z scale Code 40 track and turnouts—at predictably higher prices.
(If you're a newcomer to the hobby, the Code number refers to the rail height in thousandths of an inch. So, Code 60 rail is .060 inches high, Code 55 rail is .055 inches high, and so forth.)
To place this in perspective with the real world, the illustration below shows the scale relationship between currently available commercial Z rail sizes, my own custom rail, and four weights of real rail. (Note that real rail is not defined by its height, but instead by its weight in pounds per yard. The equivalent Z scale Code values are included for each. Illustration courtesy of Chris Kaminski.)

The heaviest rail ever used in North American is 155 pounds, by the Pennsylvania Railroad, the height of which is eight inches, equivalent to .036 inches at 1:220. And this weight of rail is not widely used, either. So, you can see that we're already at a tremendous disadvantage; for the lighter-weight rail used on sidings or shortlines, the situation gets much worse. Appearance is also compromised by width as much as height, since we tend to view our layouts from above. Compare the widths of the model and real rails: the model rails are fat!
Some hardy Z scalers are handlaying Code 40 track. While good-looking and infinitely better than Code 60—which in 1:1 is over 13 inches high!—it's still a bit on the chunky side. Although quite acceptable for mainlines, it's overkill for sidings and other places where much lighter rail is used. The thing is, Code 40 is the smallest rail that's commercially available, so Z scalers are more or less forced to accept this imposed limit.

Begun September 2007, my Z scale layout is already on its second incarnation. For the first version, I stuck with commercial track (above) to save construction time. Bad choice. Ultimately its appearance was one of the principal reasons I started over; there was simply no hiding the bulk, even with careful painting. And since I wasn't modeling a Class 1 mainline, I needed to break past the Code 40 limit.
As it happened, the solution was already at hand. A few years ago, I decided that I'd like to try modeling lightweight rail in N scale. I did a few calculations and tests, and determined that the smallest rail with which I could work, without having to modify all of my wheelsets, was .025 inches, or Code 25.
But the only way I was going to be able to get Code 25 rail was to have it custom made. I was inspired by finescale modelers in the United Kingdom who use flat (rectangular-shaped) wire for rail. At 25 thousandths of an inch, it's difficult to tell by eye that the "rail" lacks the proper profile. Flat wire is considerably more economical to make because it does not require special tooling to attain the I-shape. I found that I could have wire made to my precise specifications for just a few hundred dollars.
In Z scale, Code 25 rail is roughly equivalent to 100 pound rail, a nearly ideal "compromise" rail size that's great for mainlines while being acceptable for lighter-duty track. Luckily, Micro-Trains and AZL flanges check in at below 25 thousandths, so the rail made it past the only potential show-stopper. Thus, as I embarked on the James River Branch Version 2, I simply needed to order some PC board ties from Fast Tracks, and I was off and running.

Recently I completed a functional Code 25 turnout, which could potentially be a "world first." It took roughly two hours (now that I've done one, I could do the next in half the time), and went together with surprising ease. When it was just about finished, I took a "portrait" photograph (above), and strangely it was a bit disappointing. Yes, it looked quite good, but at the same time it looked kind of ordinary.
Later I realized that this was ironically a good thing. In the photo, it looked like a handlaid turnout of perhaps most any small scale. It was only "impressive" in person, where its diminutive size was immediately apparent. So, I took another photo with a prop to help put it in perspective (below); here it's being compared to an N scale Micro Engineering Code 55 turnout.

Make no mistake, Code 25 rail is awfully tiny. It's a challenge just to handle it; because it has no base, it must be held vertical in order to be soldered. Also, using 100% PC board ties (as opposed to the more typical practice of using one PC board tie for every 6 or 8 wooden ties) is a virtual necessity.

I doubt that many—if any—other Z scalers will try the same. For starters, not many modelers can hand-lay track, and even fewer could deal with Code 25 rail. Not to mention they'd have to custom-order the rail. It's a shame, though; Z scale could use the drawing power of greater realism. I have the feeling that some modelers shun the scale because of its toy-like appearance, which I believe is due in large part to the track.

Interestingly, once I had a substantial amount of handlaid track done, I started to realize that many of the other eyesores in Z scale—huge couplers, pizza-cutter wheels, etc.—seemed to be somewhat more tolerable. It's as if the track was a key to improved overall realism. Of course, I'm not about to start taking shortcuts simply because I've got better track now; I've already embarked upon a mission to improve the ride height of rolling stock, starting with the rather embarrassing-looking Micro-Trains caboose.

In the meantime, I've got more track to lay. To save myself a lot of unnecessary effort, I am only handlaying visible track; for the hidden portions I'm using Märklin sectional track. This necessitated making transitions, which create a striking contrast: the finished Code 25 track is shallower than just the Märklin rail alone. Then I'll need to do ballasting. The most common commercial ballast products (e.g., Woodland Scenics, below left) are not fine enough for Z scale. Two alternatives are Arizona Rock and Mineral, and minitec in Germany (I chose the latter, below right).

The bottom line is that all of the extra effort that I've put into handlaying this track has been well worth it. Would I do an extensive permanent Z scale home layout this way? Probably not, although not because of the effort required. I'm still an N scaler; I'm just "dabbling" in Z to stay active until the day I can seriously entertain a permanent N scale home layout once again. But... if I was a full-time Z scaler, I'd build an entire layout this way in a heartbeat.