Does Find My Friends notify friend when you set up a geofence alert on them?

Your questions are asking whether the person being located is being NOTIFIED. The answer depends on your definition what a notification is, but the short answer is NO.

• The device being located does not display any notifications: banner, alert, badge or otherwise.
• The device does not receive a text or iMessage alert.
• When an app is using Location Services, a solid location services icon is diplayed next to the time at the top. This includes Find My Friends' attempts to provide the device's location to the service.

Please see http://support.apple.com/kb/HT4487 and http://support.apple.com/kb/TS4008 for more information on Find My Friends and Troubleshooing Find My Friends.

*Solid location services icon is the small arrow icon. This is different from the outline of the arrow meaning an app will be triggered when a location or 'geofence' is entered or exited.

As of the latest update (Oct 29, 2012) YES it does. On the followers page there is an arrow as well as text that tells you who has the fence setup and where it is set to trigger.

So, anonymous stalking is dead....

What if a geofence is not set up?

Meaning, if I haven't set up the "notify me" feature

Just have person as a friend and occasionally launch find friends to see where they are

Do they still get notified when I launch it and locate them?

Do they get a notification saying someone is looking them up?

No.