I've been trying to figure all this stuff out and I got a great explanation from Justin over at United Bank Card.

Here's Justin's overview in simple language:

Now, to explain how it works a little.  First, if a business wants to accept credit cards they will typically need a merchant account. 

Do you now how when you walk into a retail store or at a gas pump, and swipe our card through the terminal?  That terminal will contact the merchant account provider and charge the card. 

The merchant gives their customer the goods, whatever they purchased.  Then, the merchant account provider will deposit all of that merchant's charges in their bank account automatically 2 to 3 business days later.

That is how it works in the "real world". 

Then, the internet came along. This is where payment gateways come into play. 

If you plan on doing internet transactions, you still need a merchant account, but you also need a payment gateway. 

Most merchant account providers don't have their own payment gateway, and most payment gateways require you to sign up with one of their resellers for the merchant account part.

For example, Authorize.NET, you can't sign up with them directly.  You need to sign up with someone like us who provides the merchant account, and we also create an account with Authorize.NET for you for the payment gateway. 

Then, in the payment gateway there is a "virtual terminal",
which is really just a form where you enter the card number, amount, etc, to charge a credit card.

Then, you have companies like paypal, clickbank, 2checkout.com, etc.  A merchant account does require approval, they check your credit, and so on. 

Not everyone gets approved.  For example, many of the sale letter type of sites you see wouldn't get approved, because they are considered "high risk", due to chargebacks.

Clickbank.com, etc, allow them to accept credit cards and they do this by charging very high fees, 5% to 7%, plus, they have reserves and so on.  The actual company clickbank.com has  some type of special agreement with a sponsor bank or an ISO  to process cards for multiple merchants.

You can't just sign up for a merchant account and do what clickbank does.