The process uses your email address as the ID. Suppose we made a deal on the FS/FT forums and I wanted to pay you for the item. You would tell me your paypal email address (and if you took credit card payments or not). I would then log into paypal and tell it I would like to send money to you. I would enter your email address and it would find you. I would select the category of the transaction and provide some details as to what it was so you aren't confused when you receive payment. I would verify my payment information and send it along. At this point, it will send us both an email with notification of the transcation.
Does this help you?