PayPal makes money by charging a fee and a percentage of the transaction to people receiving payments from other PayPal members.

For example, say I sell you something on eBay and you pay me with money from your PayPal account. PayPal would deduct their cut of that payment before depositing that money in my PayPal account. The amount they keep depends on what type of PayPal account I have (Personal vs Business) and what source of funding you used (existing PayPal balance vs credit card). Once I have the leftover funds, I can transfer that money to my linked checking account for free (after a few days for processing the EFT).

Alternatively, I can spend that money with someone else who accepts PayPal and PayPal would deduct their share of the payment. I can also use my PayPal debit card to withdraw cash from an ATM for which PayPal charges me $1.00. Or I can buy something at with my debit card and actually get a small percentage back. PayPal can be very flexible but their fees can get pretty high for those receiving payments.