Thanks for the info, I always thought both Bitcoins and fiat were held in escrow.
You can perhaps avoid a few potential pitfalls and complications if both the fiat and bitcoins are held in escrow, but generally, it is sufficient for just have the escrow holder hold one of them.
Since I'll be dealing with AUD, would I be better off finding someone with an Australian bank account?
If you specifically want for the escrow provider to handle both the AUD and the BTC, then yes, it probably would be faster, cheaper, and easier if they had an Australian bank account.
How does international money transfer work?
Generally you would need to wire the funds. How that is done would depend on the method the receiving banks expects (which would depend on where that bank was located).
Other options would be money transmitting services such as Western Union or the exchange of redeemable vouchers such as gift cards.
I'm not sure about Australia, but I know that the U.S. Postal Service also provides a redeemable money order that can be used to transfer value for a relatively cheap price.
Finally, the most risky (but otherwise cheapest) option is to simply package up the money and send it in the mail.
I must sound like a real noob right now, but this is just completely new territory for me
Ask any questions you can think of. It is far better to sound foolish, and learn how to protect yourself than to fear sounding foolish and end up looking like a fool when you've lost a substantial amount of money in a fraudulent transaction.