When I post things I want to sell on the internet people say they will transfer the money to why paypal account and then I send it to them. I know this is a scam, but how does it work? The money is in the account so how is it a scam?

It's not in your account.

They will often transfer the money into an "escrow" account, in which once they get the item, they'll "release the funds"... which is absolute baloney.

If you're selling on eBay, you can set up buyer requirements that limit who can bid on what you're selling (you can also set up exemptions for specific buyers, and block specific buyers).

For larger-ticket eBay sales ($500USD or more), you can use the recommended escrow service at www.escrow.com. You need to understand how this works. There's an inspection period and the funds are automatically released at the end of the period. The buyer has to reject and return the material if it's not satisfactory, and you then have five days to examine the returned goods. If there's a disagreement, there's a dispute resolution process. No money is returned from escrow to the buyer until you as seller agree the transaction is complete or terminated. There are cases of escrow account fraud on eBay, so beware of a buyer suggesting an escrow account other than www.escrow.com (the escrow account eBay recommends).

If you're buying on Craigs List, you're on your own. If I were selling a big-ticket item there, I'd set up an escrow account for payment for protection and for low-ticket items, I'd only deal with people in my area so I could meet them face-to-face.