Instant Payment Notification (IPN) is the method that PayPal uses to automatically notify a defined web page when a PayPal payment has been made. For a complete description refer to the PayPal IPN Manual which you can find on the http://www.paypal.com/ipn site.
The principle that PayPal uses is as follows : You first create a PayPal ‘buy now’ button and place it on your web page or create the buttons dynamically from a database. When someone clicks on your ‘buy now’ button, (or ‘proceed to checkout’ button in the case of a shopping cart system), PayPal posts data to the web page you defined during IPN set up. Your web page must then respond back to the paypal site.
After PayPal has confirmed the payment, it posts data back to your web page. Your web page then sends the data back to PayPal to act as a security handshake. Then PayPal will send ‘completed’ if payment has been correctly completed.
Once ‘completed’ has been received by your web page, you process the data in whatever way you want. The IPN method provides a relativly simple method of checking when a purchase has been made but remaining secure. The handshake principle of IPN makes it impossible to trick a web site that payment has been completed.
For digital goods, PHP-eSeller takes the IPN data from PayPal, carries out security checks to make sure the details are correct, then emails the purchaser with a username/password, all without any intervention by yourself. The purchaser is then able to login to a secure area where they can download their items.
The list of items which the purchaser sees does not have any urls as that could compromise the security. The list is made up of buttons which are then translated into filenames by PHP.
The purchaser only sees the files he has purchased and cannot access the file in any other way.
For physical goods the processing is not as complicated. It checks the details received from PayPal, sends a confirmation email to the purchaser if there are no problems, and stores the sales details in the database. Obviously, there is no login process required for physical goods.