The flywheel is for reverse like Yamapimp said. There is a starter motor that engages with the flywheel (on the right side) that turns the axles at a decent enough speed to back up. It's a very simple, yet ingenious, way to put reverse on a live axle mini rail. :dance:
The axle is driven the same way as most other mini's- by chain and sprocket drive (on the left).