I recommend starting with Etsy's HELP guide to SEO here. It tells you which parts of your shop and listing are used for search engines, so you can tailor your keywords to achieve the greatest impact.
Handmadeology has an excellent post about SEO.
Etsy user "SEOWebDesign" has a great series in the forums that goes into lots of detail about SEO. Find the first post in the series of six here.
There is also a video on this page, created by DanielleXO (Etsy admin).
An important SEO tip: set up Google Analytics if you haven't already. (What is Google Analytics?) This will help you figure out which search keywords to use once you know where to put them. To set up Google Analytics with your Etsy shop, log in to "My Etsy", go to "Options" and "Web Analytics". This will allow Google Analytics to access your shop to create your analytics reports. I use two main features on Analytics-- both are under "Traffic Sources" (on the left hand menu when you log in to Analytics). One is the list of referring sites-- this tells you which websites people are using to access your site. The second is the list of keywords-- this tells you which search terms people use to find your products.