On the opening page of ebay click on site map, scroll down and click on Buying Resources, scroll down click on Buyer Protection and the page will explain all about disputes.
The conditions of PayPal require the seller to send the goods by trackable means. If you report to PayPal that you haven't received the item, PayPal will ask the seller for proof - the tracking number provided by the Post Office or other carrier.
If the seller can't provide this proof, you will automatically get a refund.
Paypal keep a full record of emails sent to a seller, and any replies to the buyer. I had the same problem as you have. Paypal acknowledged my complaint, saw that the seller wasn't replying to me, and refunded my payment.
They only refund if it's over a certain amount. I bought 2 items from the same seller in seperate transactions and the total came to over the amount they refund, but because it was 2 transactions they couldn't do anything. I never got anywhere chasing the seller up and just had to chalk it up to experience.
No they don't. If the item cost 50p and you never received it you will get the 50p plus postage costs (if any) back, as long as you fulfil the terms and conditions of PayPal's buyer's protection policy.