Yes. I sell 1-5 night and it adds up to decent added income. Customers expect it too. I make the CD's myself, print the label onto the CD (no stick-ons), a local print company makes the jewel case inserts and I assemble and shrinkwrap them at home. Each CD costs about $2 to make in supplies.
The songs are all cover tunes which are licensed through the Harry Fox Agency (
http://www.songfile.com). My current license is for 500 copies of 12 songs. The rates are 8.50 Cents for songs 5 minutes or less - per song per copy. In other words, each album costs me $1.02 in royalties. You should also print the name of the publishing company and song author for each song somewhere in the CD jacket. You must have the license in hand before production begins (most reputable duplicating houses require it).
I sell my CD's for $15 each including sales tax. That's approxinately $11.75 profit per CD. I could probably increase profits by mass duplicating but I wasn't sure how many I'd sell and didn't want to overinvest and be stuck with too many so I've been making them at home for now.
CD's have a long life and you never know where they are going to wind up. I would not put out a cover CD without doing the licensing, alhough too many do. You can usually tell: those who don't pay royalties most often don't bother to put the song author and publishing info on the CD insert either. And BTW: demos require the same licensing that sellable CD's do, so you might as well use your for-sale-CD as your demo.