Why isn't my LED fading?

Your code is close. Since your are using the 'shiftbrite', ignore the PWM suggestions.

void loop() {
   Command = B00;

   SendPacket();

   Blue = Blue - Fade;  // same as  Blue -= Fade;

    if (Blue < 1  || Blue > 1023)
       {
       Blue += Fade;  // Step back one
       Fade = -Fade;  // Reverse direction of fade
       }
        
   Fade = Fade + 5;  // Increase rate of fade, decrease rate of brightening.
   
    delay (10);
}