Farmer's markets are a great opportunity to meet with your customers and have a face-to-face connection. They have the potential for large crowds of people who love and support local food. Margins tend to be high since you sell directly to the consumer, and you may have the opportunity to create value-added products at a commissary kitchen.
In addition, they are a great way to promote business in other markets such as CSAs and restaurant sales.
The challenges of farmer's markets include the tendency for market-goers to "window shop", the expectation of free samples, market participation costs, the unreliability of weather patterns, and the challenge of getting into very large or popular markets.
You'll find that most of your local food chefs will be actively purchasing at their local farmer's market and will naturally want to find out who the new producer is. Take this opportunity to build your customer base.
Before making a decision to sell at your local farmer's market, try to meet with the coordinator, and get a sense of your market potential.