Launch the Sandbox
create 2 accounts with the Sandbox PayPal. One for your merchant and one for your test customer. Give your customer a credit card [credit card number needs to be valid! expiration date and security code can be anything]
Log into your merchant account in Sandbox PayPal. Click on the Profile tab.
Adjust these things:
Instant Payment Notification Preferences Edit-> On Url: www.yourdomain.com/cgi-bin/myIPN.cgi Website Payment Preferences AutoReturn -> yes
Return url: www.yourdomain.com/cgi-bin/myPDT.cgi
Payment Data Transfer-> On (Make a note of your Identity Token--it's very long so you should copy and paste it somewhere!)
Block Non-encrypted Website Payment -> Off
Now create a button: My new version (Feb 2006) use's Scott Rossi's PayPal button. So you probably won't need this.
Create a "success.html". It should have tags like these to be replaced later: _name, _email, _key and so on.