GoAgainstTheGrain- I have a twitter account and FB page for my shop both of which I think help me a lot, with twitter by far being the best so far.
I used to participate in the showcases on etsy, but that only yielded a few shop hearts. So I stopped spending money on it. I follow a lot of blogs and I make sure I comment on posts, leave my info, etc.
I've recently started collaborating with some other designers and blogs on things to help get my name out, hoping that helps!
I second the word of mouth. I've had so many repeat customers, and those same clients have recommended me to their friends and family. A lot of clients have tweeted about me or posted their projects using my printables on their blogs endorsing my services, and I've gotten a lot of customers from that. It's pretty cool to get an email from someone saying, "I saw your work on such and such blog and wanted to know if you could make ____ for me!"
JessicaRaeJewellry- I use facebook and word of mouth - Facebook for me has been amazing!!!! I would say that 90% or more of my business is done via my fan page!
I recently had a $100 coupon towards Google Adwords so I tried running ads there. I did get quite a bit of traffic from it but no sales. I have my customers fill out an online form to give all the info for their photo cards and in that form I ask how they found my shop. About 95% are simply Etsy searches (the others are word of mouth) so I really focus on making sure my items are tagged well and that the main gallery image gives a good glimpse as to what the design looks like.