Hi J.,
I am a speech-language pathologist. It sounds like your little boy is developing typically in many areas, following directions, playing with other children, understanding language, and saying some words. There is a big variation between kids this age and how many words they can say. Certainly, most of their words are approximations, and not clear like those of an adult! They are slowly learning to say the different sounds and put them together.
Typically kids have a "vocabulary explosion" between 1 1/2 and 2 where they are using about 50 words by the time they are 2 and starting to put 2 words together. Rather than put him on the spot to repeat a word (which he may not be able to do) label things in his everyday experiences--sailboat, sand, beach, shovel, dig, etc. He will start imitating and using words as he hears them in the context of what he is interested in.
I always tell parents to talk to your child the way you would to a friend. You wouldn't ask a friend to "Say Daddy" instead you might talk to them about Daddy.
Anyways, I hope this is helpful. I have a lot of blog entries and articles on encouraging toddler language on my website www.playonwords.com. Just enter that into the search button and items should come up.
Good luck!
S.