I will pass on the matter of books to others who care to answer and thank you for coming here. There is much information to be found on this site and other similar ones, before you get to books. I can also recommend visiting YouTube for lots of how-to information.
As far as a first project, we need to ask what your background and experience is..
Generally, without knowing much more, the recommendation is usually to start with a small oscillating engine powered by compressed air. Before you get there, there are lots of non-engine things you can make as you acquire tools and experience.
For setting up a shop, you will need hand tools and a place to work. Historically, the first machine tool recommendation is a lathe capable of turning metal. Nowadays, 3-D printing is becoming very common and may be a place to start, but you need a capable computer and computer skills to "feed" it. If you want to build metal models like you see here, you will need the metal-cutting machines for sure.
There are many threads on this site which answer your "getting started" question. There are also some projects in the archives here for "first projects."
Under "HMEM Forum Support and Suggestions" You will find a Thread called "Getting Started in Model Engine Building"
Under "Tools" You will find a thread called "The Beginners Tool Box"
Thank You for coming here and for telling us you are from New Zealand. There are other members here from that part of the world and their input will be more focussed on what you can find there.
From the USA, I can suggest that you look at
http://www.littlemachineshop.com
as an example of a vendor that caters to modelmakers and small-shop makers. They have smaller tools and machines, plans for projects, a few books, etc. and you will get an idea of relative prices for things, but I know shipping to your part of the world is ridiculously expensive.
A similar UK source is:
https://www.arceurotrade.co.uk
The same can be said, but they have some "good stuff" and I have purchased from them because they had things I couldn't find anywhere else.
YouTube sources of knowledge are all over the place. But I suggest that with a beginner's thirst for information about what machining is all about and a generous side-helping of esoteric technical topics, look at
mrpete222, also known as Lyle Peterson, also known as "tubalcain" in the US.
This is not the same as the "Tubal Cain" in the UK. Peterson is a retired High School shop teacher who takes a teacher's approach to many of his projects, some of which are small engines.
For a more academic/scientific journey, Tom Lipton, using the name "oxtoolco" does a wide range of things, but often explains things with more of a scientist's approach toward absolute precision. He works in a university research facility as well as in his home shop. He has also authored some books which may be of interest to you.
I hope that gets you thinking. Please do not hesitate to ask more questions.
--ShopShoe
