Embryogenesis

I flailed a bit trying to explain early patterning in development today. I'm sure there are other links that can explain this better, but here is Wikipedia's entry on Drosophila embryogenesis. As for what sets up the initial gradient of mRNA, it's maternal effects:

The building-blocks of anterior-posterior axis patterning in Drosophila are laid out during egg formation (oogenesis), well before the egg is fertilized and deposited. The developing egg (oocyte) is polarized by differentially localized mRNA molecules. The genes that code for these mRNAs, called maternal effect genes, encode for proteins that get translated upon fertilization to establish concentration gradients that span the egg. Bicoid and hunchback are the maternal effect genes that are most important for patterning of anterior parts (head and thorax) of the Drosophila embryo. Nanos and Caudal are maternal effect genes that are important in the formation of more posterior abdominal segments of the Drosophila embryo.

From there, it's the interaction of transcription factors that patterns the rest of the body.