Can you please tell me what the laws are on making craft items / clothing & selling at craft markets in the UAE. Do you need to be licensed?

You can make whatever you want, the problem comes when you want to sell it, you cannot sell a product from your home (unless you have a trade license and your home is a registered retail location like those along  Al Wasl Road), you have to sell it at events which have a proper license such as ARTE.