You must first set up an account by visiting www.Paypal.com.
Once your account is set up, visit the My Market area and click the "Settings" tab to set up your shipping and payment preference defaults. Add in your PayPal address where indicated and that's it, you will be set up.
You will be given the opportunity on each ad to mark the item sold to a member, generate an invoice and accept a direct PayPal payment from them. You will see the checkbox in your invoicing tool AFTER you mark the item sold (that is one reason why it is so important to use the offer/acceptance tools rather than straight email to conduct a transaction).