well basically you sign up, and with ebay you bid on and win an item as normal, and if you press refresh on the page after youve won it, a button saying 'pay now with paypal' will appear. you click it and follow the steps, put in your paypal pasword etc and the money goes to them.
the paypal account is linked to your credit card, but the money dosnt go directly into and out of your credit card account, it sits in the paypal acocunt for a while, and then is removed or added to your bank account every month or so (im not actually sure how often).
its very basic, and very handy- id reccomend it fully.
to make payments out of ebay you simply log onto the paypal account, and click on 'send money' type in their email adress and the amount etc. they then have to go onto their account and click 'accept money' and its theirs.