I love Etsy and have a shop as well.
I used Photoshop to make my banner, but a lot of people sell semi-customized
for less than $20.
I do have a tax and business ID. Each state it different, and in Hawaii you are required to have one if you do anything more than occasional, casual selling like a once a year garage sale. Etsy, however, will not ask for your license or ID number.
When you sell on Etsy, you must use either Paypal or Etsy's own merchant service. (There is an option for "other" ie checks, cash, or money orders sent snail mail, but it's rarely used.) Once you make $2,000 or receive money more than 200 times in a calendar year, Paypal will ask for your FEIN or SSN, and you will automatically receive a 1099 at the end of the year. I've heard that Etsy's payment system also tracks your income and will generate a 1099 at a certain threshold.
I don't do much advertising off-Etsy. I pin to pinterest on occasion, but it brings me less than 0.5% of my hits. Mostly, I try to use the right tags and titles so that etsy's system recognizes my listings as being relevant. I'm trying to learn about google and search engine optimization, but it's so confusing! On Etsy's forums, it seems like the best of the best sellers get tons of hits from google searches.