TAXES: How does it work on the App Store?

I'm pretty sure you just consider yourself an independant contractor. Same as if you had any other business.

You gross income from sales is what Apple gives you.

There has been a debate about if this counts as royalities or not. I understand that right now it is NOT counted as royalities. Royalities are what they get from music and other works, and apps are very simular so the jury is still out on that one.

You'd probably treat it the same as if you earned money and got a 1099.

This assumes ur in the US.

Basically, this is an income, and you need to report it to your authorities, so you need to pay tax on it (well, it's like this here in Belgium.)

Regardless of if you find any information online, you should probably seek a tax consultant in your local area.