Barb has given you some really great ideas. Yes, small things sell better, and in my experience anything baby sells very well. Baby change mats, burp cloths, pouches to hold diapers and wipes. The fabric flowers are a great idea. Add them to hair clips etc. to make hair accessories for little girls. Bright and modern colours and prints work best.
Here is a website that will give you heaps of ideas, patterns and tutorials. The pattern or tutorial will tell you if you can use it for fair and market items (some will only let you use their patterns for personal use).
http://tipnut.com/category/crafts/sewing/
Have fun sewing!