Okay. This is the main functionality of my site. Here goes:
People register. They upload a list of whatever ebooks, movies, tv shows they have. Other people who want them will just have to 'search' for an item and they will be provided with a contact form to contact a person that has what they want. Very much like pianofiles.com but this is for a local community. Added features could be *forming social groups by interest *creating events etc..
Is all this possible using Typo3?
If yes, then how should I use Typo3 for it? (Just a basic idea)
If not, what should i use to create something like this?
Check out the TER, a quick search revealed http://typo3.org/extensions/repository/view/community
You could realize your project with any well known CMS or PHP framework. TYPO3 CMS, as I see it, has a strong emphasis on the editor backend. If you don't need that at all and don't have any prior experience, I'm not sure if it's the right tool for you - unless you want to get into TYPO3 anyway!
PS: For TYPO3 web apps, there will be the upcoming Framework http://flow.typo3.org, wich is in beta