Disclosure: You are not a dummy for failing to understand MLB arbitration. Baseball contracts are annoyingly complicated but here is my best attempt to easily explain arbitration.
This time of year there aren't many baseball stories. The final few impact free agents are signing, there's still two weeks until pitchers and catchers report, and we hear about how in shape guys are. The only other stories are about arbitration hearings. We see things like "The Blue Jays have 10 days to extend Josh Donaldson before arbitration" and "Jake Arrieta, Cubs headed to arbitration". This probably confuses a lot of casual baseball fans. The other day my friend asked me to simply explain it and this is the response I gave him...
"It's confusing but for the first three years a player is in MLB the team pays them league minimum or close to it but for years 4-6 before free agency the player has to receive a fair salary for what they are worth so ideally the team and player can agree on a salary and "avoid arbitration" but if they don't agree they have to go to arbitration where an independent third party decides the salary in a court but nobody likes having to go to arbitration because the team has to make their case for why the player shouldn't make too much money and it hurts their feelings and shit"
Now I left out a couple of exceptions such as guys with "super two" eligibility and some other confusing stuff but this is basically it. The only other takeaway is that even though players are supposed to get a fair salary they are still typically underpaid. An example of this is a few weeks ago Jose Fernandez avoided arbitration and only got $2.8 million. Part of this was because it was his first year of arbitration. Reigning Cy Young winner Jake Arrieta is in his second year of arbitration and the Cubs only want to pay him $7.5 million. It's no wonder these players look to cash out come free agency.