Just done something very similar. Dug out the ground so it was level using pegs, string and a spirit level as a guide, then dropped some old flags in at corners and mid points, just for a bit more stability. Built a base out of 47mmx100mm tanalised timber, essentially a home made "portabase" and then shed went on top of that.
Keeps the shed off the ground and provides ventilation to the floor while still maintaining an acceptable look.
Definitely dig out the grass. It will be hard to work with otherwise. And you should level it off as much as possible, otherwise you might find your shed starts to warp over time.