To generate a shared library you need first to compile your C code with the -fPIC (position independent code) flag.
gcc -c -fPIC hello.c -o hello.o
This will generate an object file (.o), now you take it and create the .so file:
gcc hello.o -shared -o libhello.so
EDIT: Suggestions from the comments:
You can use
gcc -shared -o libhello.so -fPIC hello.c
to do it in one step. – Jonathan Leffler
I also suggest to add -Wall to get all warnings, and -g to get debugging information, to your gcc commands. – Basile Starynkevitch