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What is the difference between and Xbox 360 Arcade, and the other Xbox 360 systems?

I know the Xbox 360 Arcade doesn't come with a hard drive, but other than that what is the difference? And what is the hard drive used for anyway?

Arcade: White; no hard drive Pro: White; 20 gb hard drive Elite: Black; 120 gb hard drive That's really about it for the differences. The hard drive is used to store games, patches, downloads, saved games, etc. Without one you can not download content from Xbox Live like new maps, game demos, xbox live arcade games, tv shows, movies, additional game content, etc.
You are correct about the hard drive. It's used to save games, to save content from Live (arcade games, movies, etc), save your gamer profile, and save music. It's really NOT worth getting one without a hard drive as you will fill up those memory cards fast. They run about 60 bucks a pop and you will for sure need more than one or two. Don't bother with one without a hard drive.