ARC or Audio Return Channel is a function of HDMI 1.4a. It lets you have a one cable solution between your receiver and HDMI ARC supported Television.
What is the benefit of an Audio Return Channel?
In many cases your audio is coming from a cable box, DVD or Blu-ray player. In this instance the audio and video source material is going from the source to the receiver and on to the TV. You can listen to your program through the receiver and the TV shows the video.
But what if you your TV is the source of the media as with over-the-air broadcasts, Netflix, Pandora or other streaming media available on many of today’s TV’s? Without ARC you’d need to run a separate audio cable out of the TV back to the receiver in order to play it through your audio system. With ARC you don’t need to do this, the signal can travel back through the same cable (see Note below) to the receiver. One cable solution.
Here is a graphical representation of how Audio Return Channel works.