Yes they do. They have a resolution service, and the buyer, if they paid with a credit card, can put in a chargeback with their credit card company. If they do that, paypal will immediately freeze your account for the amount of the requested chargeback until it's settled.


Here's a quick overview of the chargeback process:

The buyer requests a chargeback from their credit card company.
The credit card company notifies PayPal's merchant bank and debits the funds from PayPal.
PayPal places a hold on the seller's funds related to the chargeback.
PayPal immediately notifies the seller via email and requests information that could help to dispute the chargeback.

To avoid all that many places want cash, check, or money order only. The VBRO system will also let them clear e-checks and credit cards if they want.