The number in box 1 on the 1099-K represents the total of your Sales and Gross Receipts. This include "payments received for the sale of goods or services" - including shipping Income. The value in your Schedule C, Line 1 should meet or exceed what is in Box 1 of the 1099-K.
The official 1099-K instructions require Paypal to report your gross sales to the IRS. According to the IRS, gross amount means “the total dollar amount of total reportable payment transactions for each participating payee without regard to any adjustments for credits, cash equivalents, discount amounts, fees, refunded amounts or any other amounts.”