I would go to the post office and see what they say you will need. I believe you will need a customs form regardless. There are two different ones so ask then and they can help you out. Please be honest when you fill out the customs form. Marking Gift is not a great idea as it could come back to haunt you later on.
If you are going to use PayPal, keep in mind that there are international money transfer fees associated with payments from other countries and that could be a bit more than the regular PayPal fee. Something to keep in mind in your pricing.
Also, tracking your package with the post office is difficult unless you send it Express Mail which is very expensive. Express Mail is the only way you can prove delivery (through the post office) and avoid or be able to protest charge backs or non receipt of item claims. Remember with PayPal, unless you can show on line proof of delivery, the customer always wins and you get charged back.
If you are shipping to an APO or FPO for a service member in an other country, it is the same as shipping to a US Address. You might need a customs form, but it is a lot easier and you wont have the international money fees. I can't remember if you can track priority mail packages to APO or FPO addresses so you should check that out before you commit to sending it that way.
Hope that helps some.
AL @ THO