You should have a signed rental agreement to protect both parties. I would also update your homeowners insurance policy to reflect the change. This way if something happens (he falls down the stairs - the bathtub overflows - whatever) it's covered.
Any specific big hitters we should make sure to include in the rental agreement?
Yes, you need declare it on your taxes. You can deduct expenses on the portion of your home that you rent out, including any increase in homeowners insurance, AND depreciation on the % of the home that he rents. yay!
What are the pro/cons from a tax perspective for creating an LLC? I'm imagining fancy business credit cards and "business cost" deductions.
I've rented out to friends and I use just a normal boilerplate document I got from my municipality. It's pretty basic, but as it's been explained to me it ensures that should there ever be an emergency/catastrophy/insurance claim both parties are covered. It also helps prevent any bad blood down the road (i know i know, groomsman and all) by having it spelled out. It takes 15 minutes to fill out and sign adn there's seemingly no bad side.
I've never bothered with an LLC (yet) but my understanding is that it segregates your assets to offer you protection in the case of really bad things. Someone else might chime in with a better answer...
ETA; duh, I forgot one of the most important reasons to have a rental agreement - it covers you for tax time. One of the greatest benefits to renting out a room (besides the $800/mo) is that you can deduct expenses as well as the depreciation on the % of your home that you rent out. That can save you several hundred$ on your taxes, offsetting or completely eliminating what you owe from the extra rental income.