Whats the deal with selling his soul to the devil?

Well, no, it’s not a stupid question at all, although it is a bit difficult to properly answer (in simple terms anyway) if the questioner is unfamiliar with Christian doctrine.

Let’s start off with what few kernels of truth are played with in the film. The character Tommy was loosely based on a real person, Tom Johnson. As hinted at in O Brother, Where Art Thou? the real Tom Johnson was quite talented at playing the guitar. The story about the real Tom Johnson having sold his soul to the Devil (simply meaning that Johnson played so well it couldn’t be because of natural talent, he had to have given something up in order to be as good a guitar player as he was) was actually told by Tom Johnson’s brother years after Tom had died.

The short answer, then: It’s just a story.

Now this next part is where things might get a bit muddy, but I’ll try to keep it as clear as possible. Although it might seem in the way I explain things in the next few lines that I think you’re an idiot, I truly don’t. I’m merely trying to answer an honest question as honestly as I can.

Not knowing where to begin, I guess the simplest way to put it is that in Christianity the Devil is the ultimate evil. Didn’t start out that way, but that’s how he’s regarded. His greatest happiness comes when he is able to tempt a Christian away from the path of “right” to the path of evil. (For purposes of this explanation let’s define a Christian as a practitioner of common decency toward others.) Behaving in that way while alive is a guarantee of eternal life free of want, cares – a Paradise, essentially. Along the way may come temptations leading down the pathway of ultimate Evil to “the Devil’s domain” so to speak. They who proceed down that path are condemned to an eternity of pain and endless suffering. Does that make sense? (That’s why Delmar was so upset on hearing Tommy’s story about meeting the Devil at midnight in the road fork.)

The latter part you mention is far easier to explain, actually. There were and still are folks in the southern US to whom their religion is an extremely serious matter. So the news that a young black feller has sold his everlasting soul to the Devil is something they wouldn’t exactly be thrilled to hear if that makes sense.

It’s been a while since I’ve seen the film, but didn’t Stokes only bring that up because it was the only way he could think of to turn the crowd against Pete, Delmar, and Everett?” (He was also trying to smear O’Daniel as well, I believe.)

One last thing which may clear up your final question: Satan (the Devil) may appear in any form, Just because folks are speculating here that the Sheriff is meant to be the devil doesn't mean that the sheriff was the incarnation Tommy ran into.

Hope this has been at least somewhat helpful!

It was a reference to Robert Johnson (a black guitarist from the 30's):https://en.wikipedia.org/wiki/Robert_Johnson_(musician)

I'm not sure if there is any connection to The Odyssey (on which this was loosely based). Did it happen really? No. Was there exaggerated superstition in the film? Yes. Basically it is a way of saying he is inhumanly good at playing guitar, so he must have traded his soul for guitar skills because no one can actually be that good. It really not directly connected to Christianity in any way other than Christians believe that Satan is real, and the story takes place in the US where the predominant religion is Christianity.