When someone pays you via PayPal, it sends the amount to your PP account and displays a balance. This can either be used to pay for things, or you can have it sent to your bank account.
When you want to pay someone and have no funds in your actual PP account, what happens is this somewhat complicated process whereby you end up sending someone an e-cheque.
So, I'm in Australia. I want to send 'Nessa 10 USD. This is what happens if my PP balance is zero:
1. calculates how much AUD will make 10 USD.
2. informs me that they will be deducting, e.g. 15 AUD from my bank account
3. they take out the money, convert to USD
4. it goes through and the amount is no longer in my bank account.
***like real cheques, e-cheques I imagine could bounce, you have to set aside the amount you will be paying because it takes it out of your bank account at the last minute when the conversions are finalised.
If I had 10 USD in my PP account already, and I sent that to Nessa, she'd get the amount immediately. No waiting, no currency conversions etc. and you can have PP balances in more than one currency I think.
I don't know how it works with credit card accounts, I've only got a personal PP acct. It's a little complicated at first but not too difficult, hopefully.