I need to create a server that can stream an mp3 file to another device. I am planning on using VLC. I looked at the VLC documentation and am confused about the way forward to
Open Broadcaster Software supports RTSP https://obsproject.com
If you are OK with using just an RTP stream then try https://wiki.videolan.org/Documentation:Streaming_HowTo_New. This is the absolute simplest method, and I used it very recently.
If you would like to setup a full-fledged on-demand RTSP server then use this: http://juliensimon.blogspot.com/2008/12/howto-setting-up-vod-server-with-vlc.html .