Static IP configuration should be put in
/etc/network/interfaces. It is a text file, and the documentation for its format can be read by
man 5 interfaces. By the looks of it, you probably need to put in there something simple like this:
iface eth0 inet static
Once done, submit
sudo service networking restart to make use of the new settings.
For handing out replies to DHCP requests, you need a DHCP server, provided for example by
dnsmasq and possibly other packages. I have used
dnsmasq with success, and it appears to work satisfactorily even if uplink connection to internet (and real DNS servers) doesn't exist. See a how-to on the subject, it is rather straight-forward to set up.