If a buyer sends money via paypal, marked as a gift, there is no way to get the money back or dispute the transaction. It's also against paypal's TOS to make a gift payment for a purchase, so a buyer that admits to paypal that a purchase was made as a gift, risk being banned from paypal.
While paypal will reverse transactions for a purchase if the buyer complains to paypal that the goods aren't right, or never arrived; If the buyer makes payment as a gift, then paypal will tell them to take a hike, and the seller gets to keep the money.
The other difference is that for a "Purchase" payment, paypal takes an extra 5% cut (or whatever), whereas for a "gift" they take a smaller cut. For a big purchase, like a high end watch, this could easily work out to $100 still in the buyer's pocket, if they use the gift option.