This cartoonish version of Link is how he appeared in The Legend of Zelda: Wind Waker and a few other titles. In Smash Bros., he uses moves much like his older, taller counterpart. His small size gives him extra speed, though, so take advantage of that to send your foes flying.
Toon Link's Bomb move doesn't deal much damage, but the blast radius is pretty big. His bombs can be thrown in all directions, damaging or distracting your foes. Also, his up special Spin Attack keeps him airborne longer than Link's version. For some launching power, use the side smash attack.