Arc Fault detectors are nothing more than a high-pass filter on the AC 'hot' line, or each hot line if 2 or 3 phase. An arc produces high-frequency noise beyond what even an electric hand drill does. It is similar to low band RF, and should not exist on a 50 or 60 HZ power line.
They often start out as either damaged insulation or water leaking into an appliance or romex cable with rat bites that becomes wet. It starts out as a tiny leakage current, perhaps charring an insulator. The leak can be to another phase, neutral or Earth ground.
This tiny leak creates an 'arc'. Because it emulates a spark-gap or gas tube it creates high-frequency noise without drawing enough current to trip a GFCI circuit, which may need 1 mA of leakage before it trips.
Arc Fault detection catches problems with worn out or damaged insulation at tiny current levels that GFCI alone cannot detect. Arc faults may cause a trip of the breaker with only 50 uA of leakage current, as high frequency noise.
Today both GFCI and Arc Fault breakers are available and widely used. Home owners can have an electrician replace conventional breakers with both GFCI and Arc Fault types. The Arc Fault breakers are meant to tiny stop leakage currents from becoming larger and possibly starting a fire or creating a nasty shock hazard.
NOTE: @brhans has pointed out that in recent years a small DSP chip helps to distinguish motor and CCFL noise from a true arc fault, thus avoiding nuisance tripping of the breaker.
The only negative side to Arc Fault breakers is they may trip if the AC lines are used for remote appliance control or you have a contactor for the air conditioner and its contacts are worn out, thus arcing much more than they should. An Arc Fault breaker constantly tripping is a sign that an electrician should be called to investigate the reasons why.
Replacing or bypassing an Arc Fault breaker that is always tripping is just asking for trouble, not to mention what the Fire Marshal has to say.