This scam involves eBay or Craigslist and the appeal of high priced goods, usually electronics, for a bargain price. A seller will advertise an item (usually a digital camera, laptop computer, plasma TV, video game console, or cell phone) at a very low cost (usually about 1/3 of the normal retail price). The body of the ad instructs buyers to contact the seller directly outside of eBay using a Yahoo or Hotmail web-based free e-mail account. When contact is made, the seller gives a long story about his problems receiving payment by Paypal – eBay’s payment arm. The seller insists that the buyer send money by Western Union. The allure is that the product is a huge bargain (e.g. a $2000 item for only $700). If money is sent, it is gone forever and no product is ever delivered. The phony seller usually has a list of prepared e-mails to respond quickly to questions from buyers. He’ll go on and on about how his integrity is important, how he wouldn’t risk his family’s name, his legitimacy, check his feedback, etc. The phony seller sometimes boosts credibility by using a real eBay ID to list the item. The real ID has been stolen from a legitimate seller with good feedback, usually by means of e-mail phishing.
Such scams do not have to involve wire transfer; many do make use of eBay’s PayPal service. Similar to the above, the scammer will ask that the winner of the auction pay through PayPal. Once the payment clears the PayPal system and is in the scammers’ bank account, they close the account and disappear. With the money removed from the PayPal system and any ties to bank or credit accounts severed, PayPal is not able to recover your money directly when you file a complaint. The problem is compounded when the scammer makes use of a hijacked PayPal account or employs a “mule”, a legitimate account holder who has been conned or willingly agrees to broker the sale. For victims of these scams, PayPal has a Buyer Protection Program that may allow the victim to recover some if not all of their money, but there are limits to such protection (most transactions are only insured up to $200, and some PayPal transactions are not covered at all) and the money still goes to the scammer regardless of who ends up taking the loss.
Source : wikipedia