Yes you need transfer paper. Print the image using inkjet to it and iron it to blank shirt.
But personally I won't use transfer paper for quality and endurance reason. It's easier and cheaper to ask http://recommendedstore.com to do that for you. they using dtg printer.
Webkinz Clothes are usually around $10.00, but it depends on what store you are planning on looking at. To see if the clothes fit your Webkinz pet, follow these directions:
Go to Webkinz Home page, click Webkinz Catalog. Click "Other Products", then click on the Clothing button (with the picture of Webkinz Clothing above it), and click the link that says "Click here to see what clothing will fit your Pet!"
(Sorry I couldn't add a link, I do not know how)