EDIT: THIS IS OLD AND PROBABLY DOESN'T WORK, BUT I'M LEAVING IT UP FOR THOSE TRYING TO REMEMBER HOW THEY USED TO WORK. 10/30/2012
EDIT: Now updated to reflect the zone changes as of January 19th, 2008

International shipping is generally easy. If your items are all similar, its super easy. If they're all different, its a little tougher, but not impossible. This is how to set up shipping profiles.

First, figure out how much your items weight when packaged. Buy a postal scale if you don't have one at home. They're less than $20 and will save you scads of time.

You want to use First Class for most items. It goes by single ounces for ounces 1-8. Above that, prices increase in 4 ounce increments. So ounces 9-11 cost the same. Once you hit 12 ounces, price goes up again. Up again at 1 pound, and so on. First Class tops out at 3 pounds, 15 ounces. Priority Mail goes by full pounds.

Write down the info in a spread sheet. Round to the nearest weight class. (name them by letters if you like) You may want to do one column for weight for first class, one by pound for Priority.

Open the USPS online calculator in one window and shipping Profiles in Your Etsy. It's under Shop Setup->Shipping Options.

Make a new profile. Name if by CLASS and by WEIGHT. Example, FirstClass8Oz.

Put in the US shipping. You need a zip code to calculate the US shipping. Use one of two ZIPs, depending on which is farthest away: Anchorage Alaska: 99501 Honolulu, Hawaii 96854

Make sure you include both the cost of the shipping AND the packaging. If you're using Delivery confirmation and insurance, also include those. (if you are, make sure to name your profile that way too: FirstClass8OZDCw/I )

Now to the International. Put in Canada, the UK and Australia. Australia will be your "everywhere else". (canada and Mexico now use same rates. Europe is one rate, Australia is similar to the Asia, Africa, and Eastern Europe rates)

Do for each weight profile and shipping service. Since Etsy doesn't offer a "europe" option, you may also want to include the other European countries specifically. They'll use same rate as the UK so just input same number. From the Etsy buyers survey, here they are in order of frequency: Germany, Spain, Ireland, Netherlands, Sweden, France, Finland. If you do just the ones in bold, you'll have five possible regions. Do all you'll have 10. 10 is more thorough, but more cluttered.

Important note: Put them in in order of frequency. You can't move what order they appear in the profile. Start with the US, then show Canada, then UK. They some other countries (if using), then "everywhere else" as the last option.

Ta-da. Now you merely need to know what your item weighs and you'll select the right profile.

Secondary shipping cost:
This is a little bit fiddly. If you have many standard sized items, its easy. If you have two 8oz bars of soap, just subtract the cost of shipping one item from cost of shipping two items. If you have very different weighing items, I suggest subtracting the 8OZ shipping weight from the cost for that size. Example: your cost for a 2 pound item is $8. 8oz is $2. Your secondary is $6. If you don't want to do the math, halve the number for the main shipping.

Do NOT offer discounted shipping for second item if the item weights 3-4 pounds. It'll kick up to the more expensive Priority cost. If its over 4 pounds or you're already offering Priority, go ahead and offer a discount again, you're already in the higher weight class.

Things to know:
You can't print First Class at home through the postal service... but can do so through PayPal. Keep this in mind if standing in line at post office is a big deal. You may have to opt for the more expensive Priority.

You can't insure First Class International normally. If you use Endicia, you can. I HIGHLY RECOMMEND ENDICIA. It is about $7 per month, but if you do a lot of shipping or its a real hassle to get to the post, it is totally worth it. Did I mention they print the custom labels for you? LOVE ENDICIA. It does have a learning curve on the printing. I suggest the Dazzle interface.

You can't REALLY track international shipments. You can track them to the US border... then they vanish til they get to the destination. I ship 1000+ items per year. I don't bother with DC for anything but items over $50 and not at all with international items.

If you are shipping LUXURY goods such as fine jewelry, fine art, high end designer cloths, etc, there may be additional restrictions on shipping. Some countries may REQUIRE you to ship items above a certain value by Registered Mail. Stop by your post office at a slow time and ask if you're shipping high value or luxury goods. They'll know which countries require this for customs.

Italy hates you. No, really. They have the most bizarre restrictions on what you can ship including toys, jewelry, clothes, and coffee. And packages go missing a lot. I suggest stating in items that you do NOT ship to Italy except by special request. Italians know their postal services sucks. They will ask if they want it. Double check you can legally mail it to them.

Australia has restrictions on many "natural", wood, and food items. Look up the restrictions on the USPS website and decide whether or not to ship there.

Customs. ALWAYS USE A CUSTOMS FORM. Do not lie and say it is a gift. It's a $10,000 fine. Even if the post office says you don't need one, the country it is going to may require one. Always add one. It never hurts. (side note: APO/IPO addresses also usually require a customs form)

STATE IN YOUR POLICIES THAT DUTIES ARE PAID BY CUSTOMER. Some countries charge duty on incoming items. This doesn't happen every time or with any item. However, some customers get irate when they're charged duty. They should know this, but some don't. it is NOT your responsibility to pay it, it is the buyers, much like sales tax.