Congrats on your first sale! Welcome to the recently dubious joy of selling on ebay.
You don't need to print labels with paypal, you can address by hand if you'd like and just take it to the post office to pay the postage and have it weighed. I personally find that easier most times, especially since usps started adding surcharges based on distance and box size.
You'll want to be sure to add delivery confirmation to the package to protect yourself. Occassionally, a bidder receives something and puts it aside, or someone else takes it inside for them, without them realizing they have received it. If asked, you need to be able to enter a delivery confirmation number that is usually scanned somewhere along the way in transit and again at delivery, to prove that the item was delivered.
Assuming that the toddler dress you've sold isn't very heavy, I'd be more likely to put it in a priority mail box. They're free at the post office or ordered online. The small shirt size should work well and postage usually costs about the same as a flat rate envelope as long as the item is lightweight.
The advantage is that you can protect the item when thrown around in transit a bit better in a box and it will also arrive less wrinkled than if folded and sent in a flat rate envelope. I know this because we sell a lot of doll clothes and it works the same way with doll dresses.
A normal usps priority mail box - not a flat rate one though - just seems to leave bidders with a better impression of your shipping method and item's condition for some reason.
Did you specify priority mail in the listing?
If not, it could possibly be sent in a larger tyvek or a bubble-envelope via first class mail to save on postage.
When I do that for small, thin items though I add a few styrofoam peanuts so the envelope is thick enough for first class with the delivery confirmation service.
It doesn't have to be thick, just not completely flat. I think the ruling is 1/4 inch or more in thickness but am not positive about that figure. I'm sure somebody else will know for sure and can post it though...