Paypal is like a middle man that provides a secure way of sending money to people, thats why you pay a small charge when using it.
when you send money, the money goes from your bank account (assuming you have no money already stored in your paypal account) into their paypal account. That player then has to transfer the money into their bank account from paypal which can take up to 10 days.
If someone has sent you money, same thing. Its stored in your paypal account until you transfer it into your bank account.
You can just leave money in your paypal account.