Here is PayPal's Official explanation.

Here is our explanation.

1. An affiliate requests your permission to promote your product.
2. You either approve or deny them.
3. If approved, the affiliate will get a custom affiliate link just for your product.
4. All traffic to that link will cookie the visitor to the affiliate and then send them to the sales page that you designated for that product.
5. If a purchase is made, we create a "Chained Payment" that does the following:
   • Buyer sends you the money
   • You instantly send the affiliate their percentage of the sale
   • If not a prepaid listing, you instantly send JVZoo the processing commission
   • If any JVs are designated, you instantly send each (up to 3) their percentage of the sale.
     
     All payments are tied to the originating purchase payment, but each payment will show up individually in your PayPal account.  Which is great for account purposes at the end of the year.
6. In the rare cases of a refund request.  IF you process the refund inside the JVZoo.com then every single transaction that was created from the original sale will instantly be reversed and then the original purchase reversed.  You do not lose one single penny because all pieces are refunded.  This is why all refunds must be run through the JVZoo.com system.