If you really want to create a business with a fictitious name you have to get a sellers permit, post in the paper for a week that a new business is in your town, and give the county you live in a small fee to conduct business in that county (once every 6 months usually).
When you create a sole-proprietorship you and the business act as the same entity. Even though you create a fictitious name it's still mixed with your personal assets. So if the business fails miserably and you still owe people money they can sue you and take your properly to settle the debt... even if you had it before the business. If it's incorporated you're protected from any lawsuits filed against the business because the business is considered an entity into itself.
If the profit (minus expenses) is more than $400 you have to file.
http://www.quizlaw.com/federal_income_tax/do_i_have_to_file_a_tax_retu.php
Edit: Didn't see Slow Programmers message.
Regardless if it's under a business or just a hobby it's always best to keep track of all expenses associated with selling anything. Get Quickbooks Pro and start tracking your profit and loss asap. They even have a free version.
http://quickbooks.intuit.com/?priorityCode=3988700000&cid=pi_yahoo_tlp_home
