Your friend sounds like my husband did when the state of Louisiana outlawed smoking in restaurants. He was a smoker and was outraged. Since then he has quit smoking and now hates it if anyone is around us smoking when we are eating. It is legal to smoke out of doors at a restaurant. Your friend has never had an allergic response to something or she would understand that you are helping people be safe.
I agree with everyone else. Put the sign up. And I think you should sign it "An allergic person". I would go to your booth first because I know it would be safe. There are a lot more people than you think that will appreciate your honesty. Good luck with the craft fair.