How do I protect myself legally and limit responsibility? (though not sure what are the actual risks) Thanks for the clarifications
Before I accept a clients money I always build a proper business around the project to box the liability and structure it as a business. This also helps me because there are real costs (minor but they exist) to doing it, and it forces me to see it as a real thing not just a side project etc.
If you accept money as an individual you become liable personally for any legal suits etc. At least as a business your personal life & assets (assuming you follow the business structure & rules) isn't really touchable by a disgruntled client. Of course, there are some points where you could still get sued personally even if you have a business but it likely wouldn't stick without extenuating circumstances that warrant it.
In short, the answer to your non-title question is "consult a lawyer." Incorporating (or forming an LLC) is not a silver bullet for insulating yourself from liability. At the risk of boring you with details, for the most part the law is logical and rational (please stop laughing, I'm serious). If you form an LLC but the LLC seems like it is just you (intermingling of funds, etc.) and you only formed it to avoid liability when your app goes haywire, it won't insulate you from liability.
tldr talk to a lawyer
As a serial entrepreneur, my perspective is shoot first beg for forgiveness later. Honestly, nobody's going to sue you right now because you have an idea, you clearly don't have a real business setup, and you're not worth nearly as much as Google to sue. And when you end up having a million users, you have a great problem on your hands, you'll have enough money to hire lawyers anyway.
I'd recommend continuing to focus on finding your product market fit and actually getting customer stickiness before worrying about any of this.
We're a litigious society, but let's be real who's going to want to sue a budding entrepreneur. What could I possibly get from you. Wouldn't even be worth my legal fees.
I hope you don't take any of this the wrong way, just my two cents.
Hire an attorney and accountant. They are experts.
If you cannot afford an attorney and accountant, then odds are that you don't have a viable business and it might be worth reconsidering.
Legal advice on the internet is free and worth less than double that price.
If your app is less than $100, don't waste time in incorporating. Just ask for money, because getting users to pay is harder than you imagine. Use your paypal account to collect money from the first 10 customers (Even personal account can be reasonably integrated in your app). If it works, then go ahead and incorporate.
If you want a plan, that's where the costs come in. It's still not too expensive, often cheaper than hiring a programmer.