I’ve fallen in love with making fondant and gum paste cake decorations and am considering trying to build a side business on it, but I’m clueless as to whether this is something that’s subject to the same laws as baking (health inspected kitchen and so on).  Does anyone have any idea?

You are making things that would be used on an edible product, and your product is crafted from edible materials so you need to pay careful attention to sanitation/contamination.  Having said that, this kind of product may be (should be) classified a non-potentially hazardous food by your local health department, and sometimes local ordinances can have a variance so you aren’t required to have a commercial kitchen (but a licensed residential kitchen). 

In terms of a market; you’d be competing with the huge “factory” places in Asia/Pacific who churn out all kinds of gum paste and royal icing decorations and items and that may not be cost effective for you unless you specialize in the kind of flowers that those vendors don’t sell.

There’s something on eBay that I saw a year or two ago; someone was selling fondant decorations specifically for cupcakes.  There were lots of different designs and themes so maybe that’s something to look into and model after…