Note- You can no longer sign up for PayPal adaptive. It will work only if you have an existing approved app.
PayPal supports a variety of APIs & Payment methods. So wading through their documentation & finding what you exactly want can be a real pain.. We have to explain how to this to customers all the time. So here is a blog to help you use the Paypal Sandbox site for testing your Payments before you go live.
While some payment gateways will let you test their systems by simply flagging the authorization or transaction as a test transaction, in case of Paypal you need to have completely separate test accounts on their sandbox site. Before you actually test anything, you need to create a developer account on https://developer.paypal.com/ . Note that lately you can also login with your live Paypal account to the sandbox site without having to sign up to a separate one.
The Developer site lets you create various types of Paypal Accounts which act similar to live accounts. This gives you a close toreal feel when you test everything. You need to make sure you are logged in to the Developer site when you do any testing..
Paypal will let you create business & personal accounts from the developer site. You can use the 'Create Account' button once you login to the Sandbox site & go to 'Applications' , to create any accounts you need.
You wont need these for standard payments. But if you are using Paypal Adaptive or Paypal Pro, you will need this. To get this, Login to the Sandbox site & go to Applications > Sandbox Accounts. Expand the Account you are using for testing & click on the Profile link. This will open a modal popup which has a tab called API Credentials. Get the API username, API password & API Signature from there.