Escrows basically hold the money (and/or goods depending on escrow arrangement - usually only the more liquid side is held although I've had dealings where electronic shares were escrowed and the bitcoin involved transferred to a predetermined address held by the seller beforehand) until both sides reach a conclusion of the deal. It allows the buyer to negate the seller's advantage of control over the trade after the money is transferred to him here. As trust is a fundamental premise of trade, escrow allows trade to be carried out when both parties do not have sufficient trust of each other.
As an escrower (although I'm not that active escrowing right now due to real life issues - used to do a ton of them over the years), I usually ask the buyer to retain video proof of the unboxing (especially for miners - heaven knows how regularly the postal service trashes up them), and have them agree beforehand for DOA/MIA situations. Usually, adequate insurance is bought by the seller, and if the mail service trashes the item, compensation is sought from the mail service while the money is held by me to ensure that the seller sees through his part.
It is made clear to the buyer and seller that I, as an escrow work entirely based on proof - on the situation of any misdealings I rely entirely on proof provided to make the final judgement, and they agree to me as an arbitrator when situations like this arise.
PS: Please move this to trading/service discussion.
