You can view arcs as being of 2 kinds.
One is from a hot wire to a neutral or ground wire. This is called a parallel arc. The possible arc current is the available fault current which can be very high. w_tom describes a fire source from a parallel arc. AFCIs now detect only parallel arcs.
The other kind of arc is from a loose connection, like a worn out receptacle that loosly grips a plug. This is a series arc; it is in series with the circuit. It is not a "fault" as it is not across the source.
AFCIs now look for high current pulses, maybe 60A. The current in a series arc is limited to the load current, and that is far too low to be detected by AFCIs now sold. As I said previously, detecting a series arc at load current levels is probably not easy and differentiating from "normal" arcs (switches, brush motors) is probably very difficult. Waveform "signatures" are used now, and analysis should be much more sophisticated in series AFCIs.
I was surprised when I learned AFCIs detect only parallel arcs, but fault is the F in AFCI. Starting 1-1-08 the NEC requires AFCIs installed (produced?sold?) to detect both series and parallel arcs. I heard SquareD just announced them on its web site - don't know if they are actually available.
And when the 2008 NEC comes to your turf, AFCIs (the new ones) will be required on all new 15 & 20A 120V residential branch circuits (except alarm panels).
The NEC (and UL) refer to the AFCIs used now that are parallel only as "branch/feeder AFCIs" and the new series-parallel ones as "combination type AFCIs". I'm sure it was obvious from the name which ones detected parallel and which detected series arcs.
Far as I know, AFCIs sold now are also required to have 30mA ground-fault detection. (This is not the same level as the 5mA detection of a GFCI.) I think the logic is arcs may go from H-N to include ground if a ground is present. There is an interesting paper at:
Devices can obviously be made with both AFCI and 5mA GFCI detection. I believe they will have 2 test buttons.
AFCIs came out of work done at UL sponsored by the Consumer Product Safety Commission, which was interested in reducing the number of fires. An interesting paper from the Consumer Product Safety Commission on AFCIs is at:
-- bud--