PayPal is an electronic payment system that you can use to…
(1) Buy stuff online. Let's say you decide to buy a new electric guitar on eBay to annoy your roommate. Perfect. eBay uses PayPal almost exclusively, so you'll almost certainly be using it.
(2) Sell stuff online.. If you decide to set up your own business creating handmade shoelace accessories for sneakerheads, you put your stuff up for sale on your website…but how are you going to take money from people? Cash is impractical because some of your customers live too far away to fork over bills. And you want to make sure that you get your money.
You could pay a lot of money for a merchant account (an account that lets you accept payments from customers but can cost as much as $26,000 to set up—that's a lot of shoelaces). You could pay a credit card company to allow credit card processing on your website. Or…you could use PayPal. PayPal costs nothing to set up and you only pay a little bit of a transaction fee for sales and money transactions. All you need is an e-mail address to get started.
(3) Send money online. Let's say your BFF goes to Thailand to teach English one summer. Two months in, she calls and says she can't make rent because she gave her cash to a monastery. You can easily send money directly to her e-mail address through PayPal. Your friend gets the money instantly and can deposit it in her account or use a PayPal debit card to make purchases. Simple. You get good Karma, and she gets to keep the leaky roof over her head as she meditates.
About a third of all online purchases—that's over 100 million people a day—are made with PayPal, so it's a pretty recognizable system.
And no, they didn't pay us to say all this. Yet.